CFO of Life #115: The Magic of Saving and Why You Should Not Ignore It!

Saving money has changed my life and my views on money and has enabled me to do so much!

 Twice in my life, having money saved has allowed me to be extremely patient and calm while changing jobs.

It has allowed me to take my time and get the right job at the right place and not rush into the first available assignment.

 That was only possible because I had foreseen this and prepared an emergency fund. The emergency fund was there to cover any rainy days and storms that had to be waited out and any emergencies to be tended to. All that went as expected and I was a lot more comfortable than I could have been if I had not prepared.

That is one of the biggest superpowers of having enough savings, it makes you a lot more comfortable and confident in life.

That’s why in this week's newsletter, I will break down the topic of savings and use these 5 points to guide you through the journey:

1. What is saving and how does it work?

2. The psychology of saving

3. Types of savings goals

4. Ways that people save

5. How saving changed my life!

 If this is your first time reading this blog, my name is Simeon Ivanov (Si-Me-On). I write this weekly blog about personal finance called CFO of Life to bring you on the journey towards becoming the CFO of your Life! I hope you like it and that you stick around for the long term!

Now, let’s get into the thick of it!

Saving is like planting seeds for your future self. The more you sow, the greater the harvest.

It works by taking a portion of your current income and setting it aside for use at another time when you need it more. That saved amount can be used for anything and everything, but most people use it to cover their expenses, to cover a holiday or any other goal they might have that can’t be achieved with one single salary.

Consistency is the key to effective saving; saving even the smallest amounts over time will help you grow a significant pot of money!

Your psychology of money is shaped by your experience, your environment, your family and the society you live in.

 In some cultures, it is extremely uncommon to spend too much money; it is seen as a good thing to be frugal and to hunt for a bargain. Whereas in many countries, it is seen as normal to live close to or above your means. Depending on where you live, what you experience and who you get exposed to, it will all shape your ways of thinking and approach towards money.

But regardless of where you come from, you will have to deal with different emotions when saving. 3 key emotions significantly influence your savings: Fear, Greed and Delayed Gratification. 

 Fear is the biggest driver for most human behaviour. It pushes us towards a state where there is no uncertainty, no risk and nothing that can threaten our wellbeing. Fear can make our lives easier by making us take the right path, save money and prepare for a rainy day - a day when you can’t save more and you need to guarantee your consumption. At the same time, fear can prevent us from taking well-calculated risks that can help us grow our savings!

That’s why Greed is the polar opposite of fear. Greed is the innate need for us to want more and more of anything. In some situations it can be extremely beneficial, as when there are a lot of crops, you should do your best to collect as much of the fruits of your labour as you can. But at the same time, being greedy can make saving supper hard, as saving is something that stops you from taking more and more, whereas greed pushes you to want more.

This is why mastering Delayed Gratification is key to succeeding in your savings journey. Delayed Gratification is the art of shifting the reward of consumption from now to the future, which is what saving is all about. Hence, learning to delay your gratification and ensure that everything is done with purpose and at the right time will help you a lot on your savings journey!

The good thing about those emotions is that they could simultaneously be good and bad, it is all about how you use them!

Doing something without a clear aim is not productive at all! Just imagine if you go out, would you wander or would you choose a direction? I am sure that you will set yourself a target and aim to get there and do whatever you need!

 It’s the same with savings, if you don't set yourself a clear goal, it is hard to stay focused and motivated. Another good thing to do is to categorise your goals so you know what you are chasing. That’s why it is good to give them a label so you have a better idea of why they are there!

 Major Life Goals:

These should be your big, one-off, life-defining purchases that can't be made on one salary. For example, they should include buying a car, paying for university, funding your wedding, or deciding to take out a mortgage for your first house.

Lifestyle Goals:

Here, you can put the goals that require consistent and long-term savings. Those are the goals that will sustain your lifestyle in the long term. Examples of what I would add here are my emergency fund, my retirement savings and the small pot I have set aside for my future children's education.

Experiential Goals:

Here are the goals related to making your life a lot brighter, a lot better and more vibrant through different experiences. This is all about that concert you want to go to, the backpacking trip you wish to make, the month of volunteering abroad, the time you wanted to try skydiving or when you went kayaking down the rivers. Or if you are like me, every trip involves eating a lot of national and regional foods.

 Overall, it is worth attaching an idea to your goal, an idea that will keep you motivated to reach it and make you happy when you do!

‘Horses for courses’ is a famous way to say that there are different tools for different situations. That is also true for the ways people save, they find ways that work for them and incorporate it into their lives. In this section, we'll explore some practical strategies to help you save more effectively.

Automate Your Savings: Set up regular automatic transfers from your checking account to your savings account so you never forget to save.

Open a High-Yield Savings Account: Keep your cash in a high-yield savings account to earn more interest on your savings.

Cut Back on Non-Essential Spending: Identify areas where you can reduce expenses, such as dining out, entertainment or subscriptions that you don't need so you can save money by cutting them off completely.

Set Realistic Goals: Break down larger savings goals into smaller, achievable steps which would bring you both the dopamine rush and the feeling of achievement by frequently reaching your goals.

Track Your Spending: Use budgeting apps or spreadsheets to monitor your income and expenses; that way, you will know precisely how much you spend and save.

Find a Savings Buddy: Partner with a friend or a family member to stay motivated and accountable; that way, you would not only be accountable to yourself but to someone else.

Cook at Home: Reduce dining out expenses by preparing meals at home, it will not only open your eyes to the beauty of food, but it will also save you money!

Shop Smart: Use coupons, compare prices and buy your favourite consumables in bulk!

DIY Projects: Save money on home repairs and improvements by doing them yourself, it will not only save you money but also create some great memories.

Sell Unwanted Items: Declutter your home and earn extra cash from things you no longer use and no longer need.

Negotiate Bills: Don't be afraid to negotiate lower rates for services like internet, cable and insurance. If you succeed, it will not only bring you joy but it will also save you money.

Use Cashback and Rewards Programmes: Doing so, you will earn money back on your purchases and stretch your money.

Avoid Impulse Purchases: Take time to consider purchases before buying anything and make sure you need it and that you are not falling for some good marketing!

Saving money is a journey, not a destination so no matter what way of savings you choose, remember your true goals. By understanding the psychology of saving, setting clear goals and implementing practical strategies, you can build a strong financial foundation.

If you have followed this blog for a long time, you might have heard this story, but if it wasn't for me knowing how to save money, I wouldn't be writing this blog.

 I wouldn't be writing it not only because I wouldn't know what to say, but because I wouldn't have gone to university as I wouldn't have been able to afford it. As it might be obvious, living in the UK is quite expensive compared to Bulgaria. One month's rent during university cost me two months' wages from my retail job.

This was the reason why I went to university at the age of 23 and not at the usual age of 18. It took me two years to decide that I wanted to go to university, one year to decide where and what I wanted to study and another two to have enough to sustain myself through the first year of university.

 In those 3 years, I did my best and saved between 40 and 60% of my salary, which required a lot of tradeoffs. I started cooking at home as it was cheaper, and my favourite activity became playing computer games as it was free. That way, I was able to save money, improve my cooking and learn a bit more English, as I needed it both for gaming and university.

 But the journey in the UK was only possible because I knew how to save and how much I needed. I had a rough target of £3,000 that I needed to sustain myself for most of the first year. And through determination, hard work and a lot of overtime, I managed to get to my target and some.

 All that was possible because I knew how to save. After all, I knew what I needed; there was a clear reason why I needed it and a North Star to aim for. That’s how saving alone changed my life.

 Hopefully, it can help you, too - it can help you achieve something great, something interesting and something that you can one day use as an example of why people should save!

 At the same time, don't forget that saving alone would not make you rich. It will enable you to go on that path; it will allow you to start investing and taking a few more risks. But it would be extremely hard to get rich by saving as the maths and inflation are not on your side!

 And with the spirit of savings, spending, Black Friday and Cyber Monday, I will bring you on the journey to learn how to make the most out of your purchases.

Post #115 in the series CFO of Life #si #personalfinance #CFOofLife