I’ve read hundreds of books on personal finance, and there’s one strategy that stands out as foolproof for increasing savings, especially if you have a regular income. The key is to automatically deduct at least 10% of your paycheck and put it somewhere that’s hard to access.
Think about the mandatory NSSF pension scheme in Uganda. Employers automatically deduct 5% from your paycheck and send it directly to NSSF. You can only access 20% of this money at age 45, and the rest when you retire at 55. The best savings strategy mimics this: take the money out before you even see it, then save and invest it in a way that makes it difficult to withdraw for a long time.
This approach works because it acts like a Ulysses commitment device. A Ulysses commitment device helps you stick to a decision by limiting your future choices and counteracting potential weaknesses or temptations.
The concept comes from the story of Ulysses (or Odysseus) in Homer’s “Odyssey.” Ulysses and his crew had to sail past the island of the Sirens, whose enchanting song lured sailors to their deaths. Warned about the danger, Ulysses devised a plan. He ordered his men to plug their ears with beeswax so they wouldn’t hear the Sirens’ song. Ulysses, curious to hear it himself, had his crew tie him to the mast of the ship and commanded them to ignore any future pleas for release.
As they sailed near the Sirens’ island, Ulysses was entranced by the song and begged to be untied. His crew, following his orders, tied him even tighter. Thanks to the beeswax in their ears and Ulysses’ preemptive command, they safely navigated past the island.
By setting up automatic deductions from your paycheck, you’re essentially tying yourself to the mast. You’re making a smart decision now to protect your future self from temptation. It’s a simple yet powerful way to ensure you save money and build a secure financial future.
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