Automating savings - Just One Lap

Paying yourself first is probably the most important step to building wealth. We can only achieve this by spending less than we earn. The more consistent we are the better.

If you think about it, many of our monthly financial routines are automated. Payday is jam-packed with contractual debit orders, but we tend to be more ‘manual’ when it comes to savings. This can be a problem because it’s generally not pleasant seeing money leave your bank account for whatever reason – and it takes immense discipline to do something that causes pain, even for a short period.

I’ve decided to automate my savings and investments as well. From my savings challenge, investment club, tax-free savings account (TFSA) contributions to my son’s TFSA. I’ve set up recurring and future-dated payments to all respective accounts. This will ensure that as soon as I get paid, the contributions are deducted as well. In case of an emergency, I can always cancel or update accordingly. However, I can’t do this adjustment on payday. I can only do it well in advance.

This way I can achieve my savings goal without experiencing short-term pain, as the process now happens in the background (kind of like paying tax).

Essentially, I’m resetting my new net income.

Income – (Tax – contractual debit orders – savings) = my net income.

I’m free and happy to spend my entire “net income” knowing that I’ve already paid myself first. If there’s a surplus, I can reward myself with something nice. I can also invest the surplus into my portfolio, trading account or my business.

This method is more about optimising that starting line, and making the habit of paying yourself first as easy as possible.

This will not be pleasant or easy for the first few months. However, experience has taught me that it will take about three months to get used to these new debit orders.

Cash Club blog

Njabulo Nsibande is a Just One Lap user-turned-contributor and a founding member of an investment club. His “Cash Club” blog details his experiences balancing the financial obligations of a young parent with his investment aspirations.