More and more people are aware of the importance of saving. However, from that to actually saving every month is a big leap. More than half of Spaniards save no more than 50 euros a month, and not because they don’t want to, but because they don’t know how to.
The reason is that they focus their efforts and their savings in the wrong way. This is the financial story that is seen in most Spanish families month after month: they get their salary and start paying their expenses.
Electricity, rent or mortgage, telephone, credit card, car loan… Most fixed expenses come at the beginning of the month, and this is no coincidence. This is when companies know that there is money in the account. Before the 10th of the month, a significant part of your money will have disappeared simply on fixed expenses.
To this you have to add dinner outings with friends, a bit of shopping, the supermarket, gasoline for the car… And so on until the end of the month when the account is practically at zero again and there is no room for savings. If this is you, don’t worry, it’s normal.
It’s something most of us have been doing since we were kids. Just think about what happened to your paycheck. We are biologically programmed to seek immediate reward rather than think long term, and we do it from a very young age.
Research conducted with children in 1972 by Stanford University will help you understand this better. The experiment could not have been simpler. It consisted of putting a child in a room with a piece of candy on the table that they could eat whenever they wanted. However, if they were able to wait 5 minutes for the researcher to return, they would have an extra treat. Just 5 minutes and you double your profit. A decision that seems really easy and logical.
Unfortunately, reason tends to clash with reality. How many children do you think held out for the 5 minutes? Barely 30%. Now forget about the kids and think about how you use money in your day-to-day life. What happens when you go to the sales and there are loads of offers? Or why is it so hard to save more even if your salary goes up?
The way to turn the situation around is to rely less on your willpower to save and do it more automatically. The tool that will help you achieve this is pre-saving.
What is pre-saving?
Pre-saving is an automatic savings method that you can easily implement and with which you will save every month without having to do anything else.
The trick is very simple, you just have to put the candy where you can’t see it. The way to achieve this with your savings is to stop saving at the end of the month and do it at the beginning. This is also known as paying yourself first.
In the same way that you pay your bills at the beginning of the month, you also pay yourself. This payment is the money you’re going to save.
Imagine if there was a magic pill for losing weight and not getting fatter. That’s what pre-saving does for your finances. It puts them on automatic mode and takes your willpower out of the equation. Because the money doesn’t reach your pocket, you’re not tempted to spend it.
How to start saving every month
Putting the pre-saving method into action is very simple. All you have to do is follow three steps.
Step 1. Decide how much you want to save each month
The traditional way to do this is to review your income and expenses first. In other words, draw up a small budget beforehand to know what your current financial situation is. Add your income on one side and subtract your expenses on the other. That is the amount you can save right now without having to change your lifestyle at all.
If you have already established your budget, it’s easy to save some money each month. The pre-saving method will help you do this automatically. And if you don’t have a budget? You can make one or just start pre-saving right now, without waiting any longer.
Start by saving a small percentage of your salary. 5% is more than enough to begin with. The important thing in this case is that you start doing it. You will always have time to increase your pre-savings as you reduce expenses or if you simply want to increase gradually.
In fact, if you’ve never saved before, it’s better to start small than big. The savings race is always played over the long term, it is a marathon and not a sprint. If you start too vigorously and have to change a lot of things in your life to save, it is easy to throw in the towel.
Step 2. Decide where you want to save
The first trick to the pre-saving method is to put the money candy where you can’t see it. The way to do this is to take it out of your everyday checking account, which will usually be where you collect your paycheck.
From there, you can use a second savings account for the money you save every month or another financial product like a PIAS, for example. The only really important thing is that this product meets two conditions:
- That it has no commissions.
- That you can use the money when you need it, since your first savings objective should be to create a contingency fund.
Step 3. Set up an automatic transfer
The last step in the process is to set up a regular automatic transfer from the account where you receive your paycheck to your savings account. This will take you about two minutes through online banking.
Once you have done it, you will already be pre-saving and you won’t have to do anything else to continue doing it every month. It’s as simple as that.
Pre-saving is the secret to saving effortlessly each month because:
- It’s so easy to do. The most time-consuming part of the process is deciding how much you’ll start pre-saving. You can get it all set up in less than 10 minutes.
- You don’t have to remember to do something every month. With a single action, the automatic transfer order, you will already be saving each month, without having to do anything else.
- Spending without any regrets. Since you put your money away at the beginning of the month, you don’t have to constantly think about not spending in order to save. You start the month with your homework done and knowing that all the money in your account is 100% available to spend if you want to.
- Once you start, it’s hard to stop. The most difficult stage in saving automatically is to start, to take the first step. That will also work in your favor when it comes to stopping doing it. To stop pre-saving, you will have to log in to your bank and cancel the automatic transfer order. Considering how difficult it is for us human beings to actually do anything, together with the fact that this action is negative in nature, the most typical thing is that you just won’t do it.
This is the magic of automatic savings and this method that will help you save for the rest of your life, as long as you decide to start.