Step-by-Step guide on building your saving

Saving money could be a very hard task indeed. Therefore, here’s a quick and simple to follow guide on how to do so, effectively.

In summary,

  1. Develop Savings Goals
  2. Decide on Best Budgeting Method
  3. Choose a Financial Institution and Accounts
  4. Automate Your Finances
  5. Establish a Budget-conscious lifestyle
  6. Make More Money.

Step 1: Develop Savings Goals

Like any other goals, your savings goals should be well-defined, properly milestoned.

Therefore, your first move should be to set specific measurable saving goals for yourself. And practice delayed gratifications and resist the temptation to spend your money on other stuff.

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Also, try to think both long term and short term.

Determine what exactly do you want to save money for?

How much will you need?

And the order of priorities of what you need?

  • Short term: On top of 3-6 months of your living expenses. Think of saving for your next family vacation, your next anniversary presence or even holiday gift. I’ve spent more than RM 16,000 in December last year for gifts, holidays and some family emergencies. So, make sure your emergency funds are solid and plan your holiday well in advance.
  • Long term: This my friend would require much more big forward-thinking. For example, saving for your children education fund, retirement, or even house(s).

Reality Check (Analyze your Income)

Since you have set out your goals, now try to figure out how much you can realistically save for these goals of you. Now, here’s the priority list comes in.

A simple way to do this is to write down all your income and expenses. Try to minimize non-essential ones, for example, eating out, movies nights (I substituted movie night with Netflix).

There are a lot of wonderful free apps which you can download to track your expenses. I personally used the ‘Finance Manager’.

After this exercise, you could at least free up-to RM 300 – 500. Now, you can either use the money to build up your savings accounts or pay-off bad debts.

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Step 2: Decide on Best Budgeting Method for You

I usually use zero-based or Debt Snowball budget which I’ve to learn from Dave Ramsey to pay off my debt first. Although that might not be the easiest nor the most appropriate budget for you.

Here are some budgeting methods that you should really consider.

The 50/20/30 Rule

This one was popularized by U.S. Sen. Elizabeth Warren, a bankruptcy expert, and her business-executive daughter.

Break down your income and split your spending into three categories: 

  • 50% goes to essential bills and expenses, 
  • 20% toward financial goals, and
  • 30% to personal spending (all the stuff you like to spend money on but don’t really need).

Best for: People who worry they won’t have a life if they’re on a budget.

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Debt Avalanche

Helps those who have debt. It starts with the highest interest rates first (most likely your credit cards).

It helps you in the long run, saving money over time on interest repayment debt.

Best for: Those with lots of credit card debts.

Debt Snowball

Money management guru Dave Ramsey champions the debt snowball method. Pay off your debts with the smallest balances first. It based on the premise that small victories will likely to push you forward for more.

This allows you to eliminate debts from your list faster, which can motivate you to keep going.

Best for: People who owe a lot of different kinds of debts — credit cards, student loans, etc. — and who need motivation. I personally used this method. Although I actually don’t have that much debt.

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Envelope Method

Is a traditional cash-only budget which actually uses envelope where to store cash to be used for the particular category listed on the envelope.

Best for: Those who need help with self-control. If there’s nothing left in one envelope toward the end of the month, there’s no more money to spend on that category, period.

Zero-Based Budget

The way you draw up this budget, your income minus your expenses (including savings) equals zero. This way, you have to justify every expense.

Best for: People who need a simple, straightforward method that accounts for every dollar. 

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Step 3: Choose a Financial Institution and Accounts

I personally use Tabung Haji for my emergency funds. It usually earns me around 4-7% dividends each year.

While for saving accounts, I use ASB, that usually earns me around 6-8% ROI each year.

You also need to choose your financial institution wisely.

  • Choose credit cards based on your needs, and special advantages such as cashback, rebates, or low-interest rates.
  • Try not to use a credit card, unless it’s absolutely necessary.

Step 4: Automate Your Finances

Make technology do the work for you.

  • Just check on your financial institution service provider. Nowadays, there is a lot which can be automated.
  • Among the finances which you can automate includes your bill payment, loan payment, savings, etc
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Step 5: Budget Conscious Lifestyle

Spent less, save more. You just have to be smart and strategic. Here are some of our best tips to help you spend less:

  • switch off your electrical appliances when not in use.
  • sell your used items. I personally sell them on Shopee.
  • Don’t buy the stuff you don’t need.
  • Find free entertainment. Legally I cannot tell you how you should be able to figure it out yourself.
  • Cut your food budget. Try fasting.
  • Optimizes on your insurance and its coverage. Don’t underspend either.
  • Optimizes on your auto insurances. Most countries reward good drivers with a discount on their auto insurance premium.

Please share in the comment section if you have any other tips.

Step 6: Make More Money

Increase your income. I’ve tried online business and it works well for me. Although eventually, I stop once customer service bore me.

You should try though, might work well for you too.

Another option is blogging and affiliate marketing. Although not as easy as it sounds. I’m still learning how to well in blogging and affiliate marketing myself.

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Author: Muhamad Aarif

A notorious book addict by night and an oil and gas executive by day. As Mark Twain said, "The man who doesn't read good books has no advantage over the man who can't read them." So, read, read, and read some more.

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