How do you increase your savings without cutting your lifestyle?
You set a five-year goal that increases your savings each year using a small percentage of your salary increase until you are saving 10% of your salary, says Rowan Burger of Liberty. Burger says this is the concept behind the Save More Tomorrow plan described in the book Nudge. Authors Richard Thaler and Cass Sustein introduced this scheme in Australia, and four 4 years 78% of people remained committed to the plan. The average investor had increased their level of savings from 3,5% to 13,6% within those four years.
Burger says, for example, if this year you received a 7% salary increase, sign a debit order immediately to put 2% of your additional income into a savings account. Every year commit to increasing that debit order by a further 2% of your salary. Within five years you will be saving 10% of your salary without having to cut back on your spending. Another way to achieve this would be to commit to saving an amount that increases by a few percent ahead of inflation each year, for example a 9% to 10% escalation on your monthly savings plan.