Have you ever experienced that sinking feeling after having a great meal out with your friends and it’s now time to pay? You may be wondering if you should really be putting that meal on a credit card? You could use cash from your cheque account but the balance is looking a bit thin for this time of the month so you then reason you’re paying more than my minimum balance on my credit card every month, so you suppose this is ok and… SWIPE!

From over 15 years experience running financial education workshops I can tell you that at least 85% of consumers do not budget for their monthly expenses. They spend on the fly without an approach or plan for their financial lives. This is why there financial life is a mess with resulting confusion, stress, constricted cash flow and ultimately, debt.

Unconsciously spending is the formula a typical middle to upper earner applies to managing their money. That’s why most of them are not wealthy and simply work to keep up with their debt repayments and spending habits.

So why is this relevant to my savings strategy?

Because, this kind of approach to money is the reason you may not be able to save in the first place, and worse, access your savings (or live on credit) if you are constantly overspending. It also means that with rising levels of personal debt, the quality and quantity of entertainment and leisure time you have will also start to disappear.

On a more positive note however I have found you can have much more fun with your hard earned money if you learn to save it with the purpose of spending it. As an example, most people have an annual break but do not save in advance for their holidays. I’ve learned that any money I leave in my cheque account will be spent by me or my wife so instead, many years back I decided to start putting R1,500 a month into a 7 day call account so that when each December arrives we have a lump sum of R18,000 to fund our family’s fun. This is money that would otherwise have been blown and now represents a good percentage of money we need for our longest family break.

How do I do it?

I put it away at the BEGINNING of the month, not at the end. We call this philosophy paying yourself first. It’s that simple.

More recently, it’s dawned on me that saving and investing may mean the same thing to some people. In my personal finances, saving represents money I am putting away to ensure the sustainability of my lifestyle like maintaining my house, servicing my car, paying for our kids education and enabling lots of fun filled times with my family.

Investing however is not money I intend spending now. It is money I will be spending when I no longer want to work. It is my freedom plan. At the end of our careers all of us will need to have accumulated enough money so that we will be able to keep paying ourselves a salary without having to work for it. That’s why I prefer to separate saving and investing as two separate items in my budget because they service different outcomes.

In summary your salary represents the engine that drives not only your lifestyle but more importantly your wealth building activities. My advice is to get your day-to-day spending under control, prefund your annual expenses to anticipate your financial obligations and deliberately fund your fun. If you get this right, there is a very good chance you will be in a position to seriously take a shot at investing to free yourself financially.

Gary Kayle – Money Coach ™ at The Money School