As the gap between investment into the developed and developing the world closes, as highlighted in this article on FDI, opportunities abound for young entrepreneurs and small business owners to create a more secure future for themselves.
However, having access to money doesn’t equate to making the best use of it. This has as much to do with psychology as it does to business sense.
Here are seven ways in which good money savers think differently from most of us.
1) Good Money Savers Start Early – Even If They Don’t Have Much To Save
Rather than wasting time thinking about whether they should be saving, good money savers just get on with it. Every day spent procrastinating about where best to place your saving funds is a lost opportunity to make your money work for you.
There are all sorts of options when it comes to savings, from low-risk savings accounts tied to banks to investment in stocks and shares with various rates of return and risk levels. The important thing is to make a quick decision and start accruing interest as soon as possible.
Some people think they have to wait until they are earning a certain amount before they start saving. Individuals who are good with money understand that, as long as they can pay the bills, every Dalasi saved is a seed towards their future money tree.
2) Good Money Savers Understand Interest Rates
This does not mean that good money savers are au fait with all of the technicalities regarding interest rate calculations (who is?), but they do grasp the basic fact: when it comes to savings and debt, it’s all about the interest rate.
This seems like common sense but how many people when they are paying off a business loan, receive an outstanding payment and immediately pay a lump sum off the loan? A good money saver will know that, if their loan is costing them 2% per year and their savings account is earning them 5% a year, they are better off boosting their savings account until the time comes when they can clear the whole loan in one go.
This is not a hard and fast rule – there are other factors such as access to funds that might come into play – but it is an example of how good money savers think strategically and reap the rewards.
3) Good Money Savers Are Honest With Themselves
The good money saver does not live in the clouds, splashing the cash on frivolities in the knowledge that the pay check will keep coming in – because one day it might not!
One of the first goals for many savers is to build up enough of a safety net to survive three months without income. For those who are still working, it gives them time to find new employment and adjust their lifestyle to avoid running out of money and risk losing everything.
This is also why good money savers are serious about retirement income, life insurance, wills and the like. This may seem boring and even morbid but there is nothing fun and exciting about being on the streets with only the clothes on your back.
4) Good Money Savers Believe In Budgets
Budgeting is perhaps the biggest factor that separates the good money saver from the rest. Recording income and expenditure on a simple spreadsheet or, if you prefer, using an app will help you to keep track of all incoming and outgoing funds.
Over time, this will allow you to understand how much money you can save each month and where you might be able to make cost savings if necessary.
For the Gambian entrepreneur or small business owner, understanding budgeting and how to produce a cash flow and profit and loss report on demand is essential, particularly if you intend to raise finance. The earlier you can start developing these skills the better.
5) Good Money Savers Can Separate Needs from Desires
So many people lose potential future income because they confuse what they truly need to survive with what is merely a luxury desire to make them feel better. Ironically, people who feel unhappy about their quality of life are often the ones who spurn the chance to improve it by indulging in ‘retail therapy.’
A good money saver will have no such delusions. They know that eating out, buying fashionable designer clothes and watching the latest blockbuster on the big screen are examples of desires whereas staple foods, a few sets of clean, practical clothing, heating and a roof over their head are true needs. Of course, you could categorise entertainment as a psychological need but DVDs and books can be procured very reasonably at second-hand stores and a conversation with friends cost nothing.
6) Good Money Savers Automate Savings – And Pay Bills Manually
Bills are an unfortunate necessity of life, but that doesn’t always mean you have to accept the usual direct debit or automatic card debit option. Of course, you should never ever be late with your bill payments, but once you have an organised budget in place, it can be wise to delay payments until the last moment and then use cash or checks where possible. This allows you to earn more interest on your money and also to stay in touch with how much things are costing you.
On the other hand, instead of relying on your memory to transfer your cash into a savings account, consider honouring the savers’ mantra of ‘paying yourself first,’ by setting up an automated transfer system (many banks offer these) or a standing order/direct debit.
7) Good Money Savers Respond Sensibly To Big Changes
Most people get this completely the wrong way around. If their finances are hit by a costly event such as a divorce, law suit or job loss they carry on spending as if nothing had happened. If they benefit from an influx of funds (win the lottery, get awarded a work bonus or receive cash for structured settlement, etc.) they go crazy and spend like there’s no tomorrow.
Good money savers treat unexpected income in the same way as regular income. They save first, pay any debts and cover their bills next and then consider spending any excess. However, if they lose their job, someone in the family becomes ill, or their income is reduced in another way they understand it’s time to make some big changes and overhaul their budget.
On their own, many of these good saving tips can make a positive difference to your savings balance and quality of life. Together, they can transform your life from your old one of making ends meet to a brand new one of surplus funds and peace of mind.
Kathy Manson is a Finance Coach and Blogger. Currently, she is working at Catalina Structured Funding. She is very proactive and aware about each and every update of financial changes in the industry. On Twitter @ structuredfund.