The secret recipe of saving money each month consistently

Recently, I came across one interesting short story on quora, which I found interesting and worth sharing with all the readers. This story will help you understand why you are not able to save enough money by the end of the month. You will get to know why your hard earned money is spent into useless things and you don't have enough control on it.

Lady: Do you smoke?

Guy: Yes I do.

Lady: How many packs a day?

Guy: 3 packs.

Lady: How much per pack?

Guy: $10.00 per pack.

Lady: And how long have you been smoking?

Guy: 15 years

Lady: So 1 pack is $10.00 and you have been smoking 3 packs a day which puts your spending per month at $900. In 1 year, it would have been $10,800. Correct?

Guy: Correct.

Lady: If 1 year you spend $10,800, not accounting for inflation, the past 15 years puts your spending total at $162,000. Correct?

Guy: Correct.

Lady: Do you know if you hadn't smoke, that money could have been put in a step-up interest savings account and after accounting for compound interest for the past 15 years, you could have by now bought a Ferrari?

Guy: Oh. Do you smoke?

Lady: No.

Guy: Then where's your fucking Ferrari?

The story above sounds funny. The lady did not smoke, so that money must have got accumulated and she should have owned a Ferrari as per the logic. But that did not happen in reality.

Why?

The answer is - "Ferrari was never on her mind"

Her money was not put on the purpose of buying the Ferrari someday. She did not spend the money on cigarette but then that same money kept getting consumed on some other things which came in small chunks.

Life kept throwing small and tempting desires and she fell for it without realizing about it. And finally at the end, did neither have the money, nor the Ferrari.

You are the biggest enemy of your financial life

If you leave your money in the saving bank account without giving it a strong purpose. Then the lifestyle today is such that no amount of money is enough to meet your short term desires.

Life will throw all kind of requirements and if your money is available right in front of you, you will keep trying to handle those requirements without much analysis.

Justifying the expenses becomes very easy when you have the money sitting in front of you, waiting to spend. Investors are generally over-confident about their saving abilities and there is tons of research to prove that.

Take out the manual mode of investing from your life

Here is the rule - "Lesser the money available in front of your eyes, higher the chances that you will restrict your useless spending.".

You need to take out the manual mode of saving money out of your life and take the help of automation. There has to be some way, where some part of your salary leaves your bank account and gets invested on its own. Because the more you leave the decision making to yourself, it’s not going to happen on consistent basis. Humans are designed to take the path of least resistance. Machines don't make mistakes.

Let some automated way to save your money, and it will happen consistently, without fail. No one will

The best example of this is your EPF

Your employer deducts a part of your salary and that gets accumulated over months and years. That small deduction becomes a very big amount, if you leave it just like that and don't disturb it. EPF does not earn a very high interest, but still it accumulates a decent amount.

Now just imagine this, Your employer tells you that they will not deduct that amount and you have to save money each month. It's fully in your control now.

You should feel great that you have EPF and some form of automatic saving. If you were given the freedom to choose the EPF, it would be a bad thing. Because most investors won't have chosen it. Here is a similar study from US, where employees were asked to enroll for 401K program (similar to EPF in India) . However, the catch was that they had a choice to not opt.

When the enrollment was made a compulsory thing as a default choice, with an option to opt out if one wants, the enrollments more than doubled. Why did it happen? Because enrollment happened automatic !

So coming back to EPF example, Will you save money equal to your EPF each month, if it were not taken out of your salary automatically?

Are you really confident that you have the determination and commitment and control over yourself to save that money month after month, year after year without fail?

Are you understanding what I am trying to tell you here? The point is, YOU are your own enemy when it comes to saving. Take your manual judgment and your decision making out of saving each month. Let it happen on its own, automatic