Developing good saving habits

Charles Duhigg in his book, “The Power of Habit” explains what an important role habits play in our lives, whether they are good ones, like brushing our teeth and exercising, or bad ones. Good saving habits also matter and are very crucial to meeting your financial goals in the investment arena. We will use the tables below to illustrate;

Ama’s Investment Schedule

GHC 200.00 invested monthly for 12 months @ 18% per annum
Month Amount Invested Monthly Interest End of Month Balance
1 200.00 3.00 203.00
2 200.00 6.05 409.05
3 200.00 9.14 618.18
4 200.00 12.27 830.45
5 200.00 15.46 1,045.91
6 200.00 18.69 1,264.60
7 200.00 21.97 1,486.57
8 200.00 25.30 1,711.87
9 200.00 28.68 1,940.54
10 200.00 32.11 2,172.65
11 200.00 35.59 2,408.24
12 200.00 39.12 2,647.37
Total 2,400.00 247.37 2,647.37

Kofi’s investment Schedule

Random amounts invested in a 12-month cycle @ 18% per annum
Month Amount Invested Monthly Interest End of Month Balance
1 200.00 3.00 203.00
2 3.05 206.05
3 3.09 209.14
4 400.00 9.14 618.27
5 9.27 627.55
6 9.41 636.96
7 200.00 12.55 849.51
8 12.74 862.26
9 800.00 24.93 1,687.19
10 25.31 1,712.50
11 200.00 28.69 1,941.19
12 600.00 38.12 2,579.30
Total 2,400.00 179.30 2,579.30

As shown in the investor tables above, Ama (table on the left), consistently saved GHC 200 monthly for twelve (12) months and accumulated GHC 2,400.00 at the end of the period. She also earned a total of GHC 247.37 in interest, bringing her end of period balance to GHC 2,647.37.

Kofi (table on the right), on the other hand did not consistently save every month. Although he was also able to accumulate GHC 2,400.00 at the end of the twelfth (12th) month, he only earned GHC 179.30 in interest and ended the period with a total balance of GHC 2,579.30. Because Kofi was inconsistent in his savings, he missed out on an extra GHC 68.06 in interest. This shortfall of GHC 68.06 would have grown to GHC 406.28 in 10 years if compounded monthly at 18% per annum.

Clearly, the more inconsistent you are with your savings, the more money you are likely to lose over time and the longer it will take to meet your financial goals. By adopting the simple steps below, you can gradually develop good saving habits and reach your financial goals faster.

  • Pay yourself first – If you wait to save what is left of your salary after your expenses, you are less likely to save. Determine in advance how much money you plan to keep in investments each month.
  • Take advantage of technology – Consider setting automatic transfers from bank or mobile money wallet to your investment account every pay period.

NB: This applies to investors who do not have a regular source income as well. Pay yourself first out of every income you earn during the month and set automatic transfers to your investment account.

Investing doesn’t have to be difficult. Download the Achieve app from Android or iOS  and subscribe to DigiSave to start achieving your dreams.

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