How to conquer the greatest barrier to saving

We learn to save at different points in our lives; we have those that learn and start practicing saving as young children, and those that learn to save in adulthood when they start earning. For the first group, the transition from saving an allowance to saving from a salary is often seamless and they face little difficulty in determining how much they can and should save. The second group, however, tends to face the hurdle I want us to talk about in this post. The hurdle of having no money to save.

Whenever I talk to a group of adults about personal finance, this question always comes up:

I have committed all my finances, so where do I get money to save?

Despite being in the first group (my mom taught us basic budgeting and saving at an early age), last year I found myself in a peculiar position of having no money to save. I had left formal employment, meaning I did not have a regular income any more, I was supporting a young business that demanded regular capital injection and I needed to pay for my living expenses, do basic saving and save for the fun things I wanted to do or have.

Basically, I had regular cash needs, and an irregular, unpredictable income.

Today, I am saving a regular 10%+ of my gross income, but this did not just happen overnight. My lack of money was a real problem that needed to be fixed, but I also had the psychological barrier, that one can only save if they have a regular, fixed income.

I took a radical decision…

In August 2014, as I was planning my finances to see how much money I would need to earn to get by, I added an extra 10% on the expense line, which I called savings. Even before I knew where I would get the money from or how much I would earn, I made the decision to save no matter what.

The reason I did this was to get over the psychological barrier that I had too many expenses to spare any cash for savings.

…then I made adjustments

I made a major life adjustment to move out of Nairobi, and live in Thika some 42kms away from the city. Before this, I lived 7km from the city centre, and 5kms to my former office, so why move away?

• I realized that you save the most money long term when you make savings on big ticket items. Quitting restaurant coffee might save you an odd 500 – 1,000 bob a month, but by changing where you live, you could save your rental expense by as much as 50%, with a resultant increase in fuel cost of just a fraction of that. For me, moving to Thika helped me save on rent, school fees (I could afford a better school than I could have afforded in Nairobi), food, and it resulted to a better quality of life. The negative effect of that has been a 30% increase in my fuel and car maintenance cost, and a whole lot more punctuality for my Nairobi meetings because I leave early to avoid traffic 🙂
• Living at the mid-point between my farm and the city meant I could give my farm more attention than living at a location where I have to drive 100kms every time I need to be at the farm. This has translated to a saving in the farm’s fuel expense, and greater control for me.
• Moving towns was a necessary social adjustment for me. My life had changed. I was no longer an employed senior executive with the accompanying lifestyle. With more time on my hands, I was spending more time and money socializing and spending on “city pleasures”, which were not necessities, but fillers for the free time I now had. I was living the CEO lifestyle, without a CEO income. Moving to a smaller town helped me adjust downwards mentally, without feeling like I am missing out on the “good life”.  The free time is now spent more constructively than at coffee houses.

…the result…

Is that I have moved from having no cash to save, to saving more than 10% of my income. The bulk of that saving has been going to my SACCO account. Being in business and without a formal job makes a cheap credit line priceless so I have been building that up. The rest has been going to my regular savings and of course my planned holiday, which as I shared last month, I had stopped saving for.

So what do you do if you have no money to save?

1. Make the decision to start saving, commit to a figure and insert it on your budget like all your other expenses. At the very basic, commit to save 10% of your net income every month.
2. If your current income will not allow you to save, examine your living expenses for adjustments you could make. Saving is the most critical “expense” on your budget, so take it as seriously as you would a child’s school fees, or a medical bill.
3. Automate your savings. Most of us keep falling off our savings wagon because we expect to have the willpower to save every month, which doesn’t happen. Save yourself pain by setting up a standing order for your savings to another account that is not easily accessible. If you are like me and your income is irregular, whenever you receive a cheque, write out a savings cheque before planning for the money you have received. Save even when you have debts to pay.

This article is the second in a series of sponsored posts for the Barclays Savings Challenge. You can follow the discussion on Twitter and Facebook and share your own experience by using the hashtag #AfricaSaves. Visit the Barclays website for more information about their savings account.

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