A savings strategy that will see you saving the money you would have otherwise spent on a big purchase or expense, on a regular basis.
Have you ever noticed that saving money regularly, at your own accord, is very tricky? Yet making loan repayments (such as a mortgage or car) on a regular basis is something you always seem to be able to achieve?
It’s interesting to see how hard we struggle to save money over the years, though the moment we are financially obligated or committed to a purchase (and in turn a repayment) we have no other option but to begin showing discipline and meet our repayments or suffer a penalty.
This phenomenon is what I like to call ‘the real world’. When we have no other choice but to make a loan repayment, or face financial penalty, we always seem to do it.
For example, friends of ours are on sizeable dual incomes, have no mortgage and can barely save money each month. They have no obligation to save; unlike my family, who have one income and a mortgage, we are in turn forced into saving money by repaying the mortgage.
How is it that a family with less money can make greater progress? It’s simple. It’s because we have no choice, we are committed to our repayments and it is not until we are forced to save money that we do.
So why do we see saving money any differently?
If we don’t save; we can’t invest, pay off debt, go on holidays or financially prepare for our future. While we may not receive a material penalty, our money situation is definitely penalised and we are not becoming better off.
Imagine if we put the same level of discipline we put into our obligations into growing our savings account? The results would be incredible.
A new saving money strategy is born
I want to use this blog post to explore a savings strategy that would see you fake a purchase, or perhaps cancel a purchase, yet continue to save the required repayment instead into your savings account for the term of the ‘fake loan’.
From here on out, this is called the ‘fake purchase savings strategy’.
How to get started with the fake purchase savings strategy
You goal here is to save money into your savings account that could have otherwise been assigned to an ongoing expense, except you instead decided not to proceed and are now saving the money instead.
Some examples of fake purchases you could make
These are items or scenarios that you could use to get inspired to pocket the savings instead of committing to a loan or repayment.
You were going to upgrade your car to a new one, instead you purchased a second hand one and saved yourself $200 a month in repayments for the five year car loan.
Outcome: Save the $200 per month for five years and grow your savings account by $12,000.
You have a mobile phone that isn’t the latest and greatest. To upgrade to a new phone you would need to spend $20 a month extra for 24 months on contract but you opt to keep your old phone for two more years.
Outcome: Save the $20 per month for two years, in turn growing your savings by $480.
Your television is getting old, you decide it’s time to buy a new one but don’t have the funds so consider getting a store credit card to purchase a $3,000 TV. Instead you decide you don’t want to go into debt and save the money instead.
Outcome: Save $150 per month for two years, saving $3,600 which is the cost of the TV plus interest you would have paid.
Pretend you are going to renovate the bathroom like you always wanted. It was going to cost you $20,000 with intent to repay evenly over 3 years.
Outcome: You save $555 per month into your high interest savings account, amassing $20,000 in savings to put towards your future renovations while earning interest.
Some examples of downgrades/cancellations you could make
Items that you are already paying for but could potentially reduce in order to save the difference in price.
Remember that these are examples and your savings could be more or less depending on your circumstances. In some instances, the savings could be significantly higher.
- Opt for a lower internet plan; save $20 per month
- Refinance your home loan; save $100 per month
- Compare health insurance and find a cheaper plan; save $30 per month
- Cancel your home phone; save $50 per month
- Sell your car, buy a cheaper one; save $100 per month
- Sell the second card; save the entire sale price or monthly repayments
This strategy has the ability to save you a lot of money long term
Think about it; we happily buy $40,000 cars that cost us $590 a month over seven years, which equates to $49,500 in total including interest and know that at the end of this period, the car is not even worth close to that. We are paying a premium in repayments for an asset that is guaranteed to be worth less than when we started.
It’s amazing how we can learn valuable life lessons from the simple things in life. Saving money is hard, yet committing to purchases and debt comes easy to us.
If you think you are a terrible money saver; simply remind yourself of this. How many car loans, home loans, credit cards or store cards have you committed to in the past? Imagine if you decided instead to not commit and save the money instead.
Your savings account would be massive. Some may say this isn’t realistic as they needed those items, but let me ask you this; what if you even made a small change to a purchase and saved the difference? Opting for the second hand car, not the new one and saving the difference?
It’s a great strategy to save money yet rarely practiced.
What other purchases can you ‘fake’ to grow your savings?
So tell me, what purchases are you going to fake and how much money can you save by implementing this strategy?