Unlocking the Secret to Effortless Saving
As one of the key principles you learn on your way to financial capability, saving is the propeller that allows you to accumulate the money required to make important personal financial decisions in the future. For many, however, the habit of saving is often perceived as a speed bump.
This follows the trend that savings are often the last amount to be put away and the first to be withdrawn in case of emergencies. This has created an unstable financial condition for many. A 2020 financial capability study found that while 57% of Ugandans had saved in the previous year, only 1 in 10 could maintain their current lifestyle with their savings for longer than six months. This begs the question of why so many of us struggle to maintain a healthy saving habit and what we can do to change it.
‘Saving is a sacrifice. Saving is also the reward.’
One of the barriers that dissuade people from sustaining a habit of saving is slow wage growth. It is important to recognize that saving as a financial decision does not occur in a vacuum. Adults in Uganda who spend their excess income on entertainment gadgets, leisure, transport, and high-end goods among others account for less than 3.0 percent of the population. This indicates that for most people, saving often competes with expenses on some of their basic needs like food, housing, health care, and education costs among others.
Tragically, this affects people’s ability to put away enough to cater for things like emergencies, health care, financial goals like giving their children a higher education, and their ability to retire. This has bred a condition by which many of us ignore our future growth, for the ability to cater to our momentary circumstances.
While there is no easy way around this challenge, stringent economic conditions call for heightened personal financial management. Managing your expenses so that you can save and invest will ensure that you begin to earn more and gradually accumulate enough for your future goals. This may include finding cheaper sources to buy goods, finding more affordable transport options, so that you can allocate some of your income to savings, etc. Read more on our creative saving hacks.
While most financial advisors will encourage the 50-30-20 rule in budgeting, you need to prioritize the habit of saving, before you can ramp up the amount to where it needs to be. Start nurturing the habit of saving, even if it is just 5% of your income. With XENO, you can automate your savings and invest starting with as little as UGX 10,000 ($3) and begin working towards your most important goals.
We’ve been brought up with the understanding that saving is predominantly putting away a little something for a rainy day. This limited representation of saving, however, does more harm than good. Saving often competes with ‘saucier’ financial activities like investing and borrowing to achieve financial goals. In fact, 73.0 percent of adults in Uganda reported that they engage in farming; 35.7 percent in business activities while only 21.0 percent save to meet their financial goals.
When one deposits money in a place where it lies dormant (without attracting interest), this becomes a double tax on the habit of saving. No one wants to deny themselves the gratification of consumption or investment, only to have the value of their savings erased through inflation. No wonder, despite the majority of Ugandans being risk-averse, most are likely to engage in extremely high-risk investments or take up high-interest loans to meet their financial goals. However, why should a key financial goal like your children’s education be at risk in high stake investments or debilitating debt?
This is why savings exist. So how can you have the best of both worlds? Most people are unaware of the option of saving in low-risk mutual funds that attract interest. Collective investment schemes like XENO ensure that your savings are diversified into a portfolio that will match your personal risk profile and desire to achieve specific life goals. This type of low risk saving and investment scheme allows your money to compound interest to meet key financial priorities besides your various investment activities. Learn more about compounding interest.
Building effortless and sustainable saving habits requires our ability to equate our savings with the desire to achieve key financial goals. While saving is generally a means to an end, whether it be, spending on new clothes, buying a house, or giving our families the life, they desire, it is an important propeller that will channel our current income into these future goals. Therefore, this requires building our personal financial management capacity through the discipline of planning, budgeting, and diversifying our income adequately to spend, save and invest.