Saving a large amount of money: mission achievable

YEREVAN, 4 September. /ARKA/. To carry out large- scale plans - from a dream holiday to an important purchase - we often need to invest not only energy but also a large amount of money that is not readily available. The well-known and natural way to get funds is savings.

The principle ‘save, and after a while you will have the required amount’ seems to be basic and understandable. However, it is not so easy to make a clear plan and follow it in practice.

This article offers a set of recommendations for those who want to create substantial savings.

Setting aside a fixed percentage of your income

This way you will learn how to set aside money for savings on a regular basis, develop a consistent pattern and understand if there are any difficulties. When setting a percentage of your income, keep your goal and earnings in mind. Self-indulgent spending cuts that make life worse, just as saving very little amounts, is not a successful approach.

Economists Shlomo Benartzi and Richard Thaler have proposed a principle: increase the percentage of money you put into your piggy bank when your income increases. In this way, additional contributions would not feel like a major blow to the budget, and savings would increase dramatically.

Automate ‘useful’ spending

Open a separate account to transfer a fixed percentage. Since systematicity plays a huge role in saving, set up automatic deductions. This will prevent you from postponing and rescheduling payments. Moreover, there is such an option as a deposit from which you cannot withdraw funds before closing. The bank will transfer money from the savings account to it.  

All non-plan income, e.g. bonuses, pay for additional workload, should be allocated to the savings account

Getting rid of habitual but unnecessary expenses

To get rid of ‘automated’ spending, you should keep a spending diary. It will reflect an objective picture and detect pointless subscription services and unnecessary purchases. Refusing them, you will be able to direct the funds to savings.   

Change your household habits. For example, saving water and electricity, making a list and tracking discounts will help you cut costs.

Using the possibilities of your bank cards

Often, customers are offered additional benefits, such as interest refunds, discounts on certain categories of goods or bonuses from the bank's partners. Such benefits will help you save money and free up additional funds

Putting off big purchases for a month

Sometimes when we aim to buy an expensive item, we do not give ourselves enough time to think about it. This creates the illusion of ‘planned spending’, which is not really a necessity.

Thinking, for example, about buying a new device, allocate the amount and postpone the purchase for 30 days. During this period, you will be able to more carefully approach the choice, perhaps revise the original option and find an alternative. It is possible that after a month you will reconsider the decision to make an impulse purchase. If you refuse to spend, do not withdraw the money you have put aside from your savings account

Increase your income

Seek to generate additional free funds. You can:

- Discuss a salary increase or moving to a different position with your supervisors;

- find a part-time job;

- sell unneeded items;

- rent out vacant property if you are able to do so.

Add an element of play to the process

Just because topping up your savings should be a routine action it should not stop you from making it fun and allowing yourself ‘productive spontaneity’. Try a few tricks:

- Leave multiples of ten in your account, transferring a small balance to savings every day. For example, if you have 10,172 left on your card in the evening, you can set aside 1.72 or 172. The same rule applies to cash - putting change in a piggy bank has been familiar to us since childhood.

- Celebrate everyday events by putting aside a related amount. For example, if the thermometer shows +34, put 340 c.u. into the piggy bank. Or on the day when you decide to watch your favourite film for the third time, put aside 300 c.u. or 3 thousand.

- Save up notes of the same denomination.

- Another famous ‘gaming’ method is to write on several envelopes the amounts and regularly, choosing one of them randomly, make the corresponding top-ups.

Attention, inflation!

One of the key principles in accumulating a large sum of money: savings should not depreciate.

Remember that external factors and market processes also greatly affect the success of savings. One major obstacle is inflation.  

If savings do not generate additional income, you will unfortunately not progress towards your financial goal, even with a high level of discipline and motivation. To build up capital, you can invest in banking products and market instruments. This way, the funds on deposit will keep up with the rate of inflation, and a successful purchase of stocks or ETFs will help keep ahead of it.

On the way to your goal, it is important to recognise not only what to do, but also what to avoid. We have already discussed the first point, now let us turn to the second.

What prevents you from saving:

- Lack of financial literacy. Many people do not record their income and expenses. They have only a generalised picture that does not reflect the details and ‘weaknesses’ of the budget. Because of this approach, there is not enough money for savings and there is no motivation to set new goals, to immerse in the topic of the market and financial instruments.

- Haphazardness. Do you know the feeling when there is an impulse to make some important step? Then a plan is built in your head, and the way to new achievements seems to be surmountable and clear. However, in practice, obstacles appear, enthusiasm fades and discipline is lost. This is often the story of accumulation - over time, contributions become irregular, decrease or stop.

- Lack of purpose. A happy carefree future is a beautiful but abstract image, and it is difficult to save for its realisation. If you do not have a specific object, you do not realise how much money you need and when you need it. You need to understand what should be in your beautiful future - for example, a house or capital that allows you not to work - and save specifically for these goals.  

- Overly ambitious plans. Factor your realistic capabilities and commitments into your strategy. Creating savings is a way to improve your life, not bring discomfort. Try to think rationally and do not set yourself impossible or impractical goals. If the difference between your income and expenses is insignificant, is it worth it to aim for big purchases for the sake of following trends? Maybe it is more important to create a financial cushion?

- Stereotypes and fears. We ‘live once’, so why save money and deny ourselves something? Besides, no matter how much money we have in our accounts, friendship and love cannot be bought. Such attitudes are very convenient to refer to in order to justify the lack of savings. In fact, the desire for material well-being does not question the priority of human values. Money is only a means of making life safer and more comfortable, helping to discover new sides of it.  

- ‘Psyche Traps’: people find it easier to get rewards here and now than to wait, even if future benefits are guaranteed. By saving money, it is as if we are ‘voluntarily giving up’ our own money for abstract images.

As a conclusion, let us list the factors of successful saving

- Human behaviour: discipline, understanding of the goal, ability to overcome difficulties and excuses.

- Process: accumulation should be regular and systematic. At the same time, do not be afraid to try new ‘tricks’.

- Counteracting negative external factors: savings must ‘work’, otherwise they will be devalued.

- Income growth and streamlining of spending.

This article was prepared within the framework of the joint project ‘The Year of Investing in Oneself’ by ARKA, AMI Novosti-Armenia news agencies and Freedom Broker Armenia.

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10:00 09/04/2024