A Budget:
A written budget suits a lot of people.
Pictures or diagrams:
A pie chart with income and outgoings.
Super Saver Emma and BernieI met Emma before she was married and I can vouch for her "super saver" status. Here is her system (unabridged).
My attitude towards savings, and money in general, has always been to think of it as a flexible concept rather than dollars and cents. I've never been keen on micro-budgeting, so I stick to three broad strategies.
The first is that I set a "zero" in our bank account that is way above rock bottom; our zero these days is $10,000 (it hasn't always been so high!), meaning we avoid going below that amount with the same vigour we'd avoid going below the real zero in our account or into debt.
My second strategy is to paint a broad picture of our financial situation in conservative, or "generous," terms several times a year. I reckon our income by rounding down - by a lot. For expenses I round up - again by a lot.
This creates generous, but practical, margins between our income and expenses. What's great about these margins is that I almost never have to dig into my "zero" ($10,000) or my savings. If costs pop up unexpectedly, I've already accounted for them in my margins.
My final strategy is to scrape the excess in our bank account into investment. I include a savings amount as an expense in my broad budgeting but I hardly need to do it because once our regular bank account goes above our designated limit of $20,000 I scrape off the top $10,000 or so and send it into long-term investment.
This means we're fairly regularly adding to our investment without worrying about what the market is doing. When the money is there, we invest it.
Waiting versus costs
Save $1000 per month for 25 years at 6 per cent net return and it will grow to $697,000.
Procrastinate for five years and then start; $1000 a month for 20 years at 6 per cent net return and it will grow to $467,000. A difference of $230,000!
Patience needed
If you save $1000 per month at a 6 per cent return, after 12 months you will have put in $12,000 and it will have grown to $12,397.
Why only $397 profit? Because some money has only been in one month, some only two months and some only three months, and so on - money needs time to work.
Save $1000 a month at 6 per cent for 10 years and it will grow to $176,660, or $56,600 profit.
Savings and investment is all about time, which requires patience.
Seek knowledge
"The better off have small TVs and big libraries, and the less well-off have big TVs and small libraries." - Zig Ziglar
It is not hard to figure out why.
This article was supplied by Alan Clarke, author of Retire Richer - A Practical Guide For Everyone Aged 25 to 85. Clarke also blogs on www.investandretire.co.nz and is an authorised financial adviser whose disclosure statement is available on request and free of charge.
