Saving for your dreams

Visualise it, and forget it

Everyone has a dream. Be it a big house, a nice car, quality education, round the world trip, or a large emergency fund. All dreams, in some way or another require money to fulfil them. That’s the hard truth of our world.

Many people fall for the “visualisation” “vision” and “motivation” traps. Visualising a dream is very pleasant and requires no work at all. A person could spend hours daydreaming and feel like they accomplished something. Focusing on dreams, rather than the work that is needed to achieve them, will get you nowhere. That’s why life and motivation coaches sell thousands of copies of their books.

I advise visualing a dream once or twice, writing out all of the details of it, and then focusing on the work required to achieve it. Otherwise, you’ll likely be tempted to spend money on motivation books, seminars or workshops. Or, you could fall into the trap of dreaming, rather than working for the dream.

Remembering the dream you are saving up for will not help you get through the boring and monotonous work that is following a savings’ strategy. Over time, your will seem more boring and not worth working and saving for, if you think about it too frequently.

“Forgetting” your dream and just focusing on the work required to achieve it is one of the ways to save up for your goal. After all, day dreaming won’t help you save or invest money.

Follow the 10% strategy

10%, depending on circumstances, can be both be large and small. A 10% yield rate on a high risk investment would be small. A 10% interest rate on a consumption loan would be high.

To achieve the saving goal for your dream without limiting yourself severely, 10% of savings per month should be enough. However, 10% savings per month off of your income can feel like a major burden to some people.

If we go with the financial situation of an average person, anywhere from 40% to 60% of income will be spent on rent and utilities. Around 20% will be spent on food and other necessary purchases. 10% is for unexpected purchases. That leaves the average person with 30% to 10% of the initial income left for savings. It means, that in the worst case scenario, the person in the example won’t be able to save for their dreams by putting away 10% of their income every month.

For the people who are in a harder financial situation, I recommend saving 10% of the price of every non-necessity purchase. What does it mean? Every time you buy a product that is not necessary to your survival (take-out, cinema tickets, luxury clothes), you should set aside 10% of the price you paid for the non-necessity.

Let’s see how fast you could save up 1,000 euros for your dream following this strategy:

1,000 euros – 800 euros for rent and basic necessities = 200 euros

200 euros – 100 euros for other expenses and savings = 100 euros

Anywhere from 50% to 100% of the 100 euros is then spent on non-necessity purchases. So, by applying the 10% rule, a person would be saving from 5 to 10 euros every month for their 1,000 euro goal. In a year, it would be 60 to 120 euros.

But those calculations are based on a relatively low income of 1,000 euros. A person receiving 1,500 euros per month would be able to save using from 360 to 720 euros per year. A person receiving 2,000 euros per month would be able to save from 660 to 1,320 euros per year.

Do you see how easy it is to save money? Just by “penalizing” yourself for every non-necessity purchase with a 10% “tariff”, you could achieve a 1,000 euros savings goal in a year or in a year and a half. That’s an excellent time frame for such an easy and painless method.

Tools to maximise gains

  • Putting savings into investments – it’s hard to achieve your dreams if you’re only relying on savings. Inflation is a concern, and not taking advantage of growth opportunities won’t help you achieve your dreams quickly. Putting the savings into a dedicated savings account will help in save faster and at a more efficient rate. For more risky investors, putting savings into stocks is also a choice.
  • Using dedicated apps – the Google Play store and the App store boasts thousands of savings applications. Most of them offer savings methods that are highly customizable. Also, the majority of the savings apps operate with a method similar to 10% strategy. Those savings apps also automatically save a certain percentage or an amount off of your spending.
  • Excel, Libre Office, etc. – if savings aren’t tracked, they will get lost. Dedicating 10 or 15 minutes per week for tracking your savings in a spreadsheet is not a lot. However, the time spent writing down and calculating your savings will be worth it. After all, tracking your savings in a spreadsheet not only helps to see your progress, but also serves as a motivator to save more.

Losing it all

Anyone’s who has saved for their dreams knows that these savings are often used for emergency funding. An insurance pay out is not always as large as you would like it to be. An emergency fund does not always cover an unexpected expense. And sometimes it’s more rational to forego your dream for a year or two rather than completely deplete the emergency fund.

Also, if you have decided to put savings for your dreams into risky investments, such as stocks, crypto currencies, IPOs or financial derivatives, there is a very real chance that your initial investment will be completely lost. Past performance is not indicative of the future, and no one knows how will your investment perform tomorrow.

That’s why when saving for your dreams, you should be prepared for starting over again and again. Most likely, you won’t experience a major catastrophe during the time you are saving for your dream goal (maybe even in your lifetime), but being realistic will help you cope with loses and setbacks.

Motivation and hard work

There will be times when saving for your dream or dreams will seem too hard. The motivation to work hard will fade, and you will want to just live in the moment. To live in the moment, and forget your dreams which are hard to reach and require savings.

It’s okay to take a break. Life is longer than we think, and a pause can help you double down on your savings.

After all, even if you achieve your dream later, you still will feel a great sense of accomplishment atop of what the dream means to you.

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Categories: Daily savings, Investing

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