How can I save when I earn little?

I have been asked this question several times. My approach in attempting to answer this question begins by trying to understand someone’s circumstances. I ask about their education, skill set, interests, hobbies, business, employment, marital status, children, living conditions, salary, loans, age, etc. This helps me to gauge what kind of advice I should give. 

Sometimes the issue is indeed low or no earnings. In this case I try to steer the conversation to what other options to consider to make additional income or change careers. So I ask how they spend their evenings and weekends. I inquire about business interests. I ask about past projects they have tried. What I try to establish is if the person is willing or interested in building other sources of income. The focus is to show these people and restore their confidence that they have a lot to offer the world and they don’t need to be stuck in their current reality. So I guide them to identify something they’re good at and enjoy doing. I then encourage them to develop it further into a viable income source. This approach sometimes works and a few people have actually started different ventures.

In some cases the person simply has too many responsibilities. In this case I try to show the person that they can’t solve all the world’s problems and should limit their scope of influence. Or at least they should teach their beneficiaries “how to fish” in order to reduce the dependency.

In other cases the problem is simply lifestyle. There are some people who will always say they earn little whatever salary or income they get. These people always find a way to spend their money. When I notice a spending problem I try to understand the root cause. Some people have weird insecurities and spend to make themselves feel or look good to other people. Sometimes it is peer pressure to keep up appearances. Other times it is simply lack of knowledge of simple savings techniques like using standing orders, etc. My strategy in this scenario is to expose the person to an alternative reality where they are in control of their finances. I usually put them in touch with investment professionals who help them set up investment accounts. Those who follow through are amazed when they look at their investment accounts in a few months.

Many times the issue is mismanagement of debt. When i notice debt lurking in the background I dig in a bit deeper and understand the depth of the debt. I try to establish why they got into debt. I then recommend a strategy to get the debt to controllable levels. For a few cases I help to finally get them debt free. It is quite fulfilling to receive a celebratory message from someone who has paid off one of their loans.

For several business owners the underlying problem is usually financial mismanagement. Many run their businesses like a personal ATM and they keep withdrawing money from the business. Others have no idea of their revenues, costs, receivables, liabilities, etc. They simply have no records. So they just say the business is struggling but you can’t establish why? In this case I insist that they start managing their businesses more professionally. I share some tools and templates to assist them.

The general advise, however, is that at whatever level of income they should save a minimum of 10 to 20 percent every month. The money should be saved in an investment account like a unit trust or fixed deposit. This money should not be touched for several years. As you salary or income increases you should also increase the amount you’re saving and investing. Focus on developing your skills and experience so you can earn more. When you earn more, then you can save and invest more. This is how you become rich. It’s quite that simple and basic really!

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