The post that delves into the psychology of how to save more money with another water analogy.
Last week I laid out the foundation of my money-saving methodology: the Savings Fountain. In brief, I use my salary to, first, put 15% into my pension. Then I save into an ISA. Finally, with anything left I contribute to a third savings pot that is notionally for overpaying my mortgage.
The problem is that after the pension and ISA contributions there’s very little from my salary left to put into the “mortgage overpayment pool”. If I want to overpay the mortgage faster then I need more income. Here’s where the “side hustle hose” comes in; fill up that final pot with income from side hustles or alternative income streams. Your final savings pot may have a different purpose to mine, but the principle is the same.
This isn’t a post about what side hustles to do. There’s a tonne of posts on personal finance blogs about side hustling (for example, this list from The Humble Penny). It is, instead, a post about how to categorise the funds that fill up that final savings pot. I find that this kind of mental organisation has a really positive psychological effect on my motivation to earn more money and save more money.
In the spirit of continuing with aquatic analogies, I present the Trickle, the Drip and the Splash.
These are regular amounts that you can guarantee are going to go into your savings pot for a set amount at a set time. They will often be quite frequent, monthly or even weekly, but could be less frequent. Some examples are:
Anything from your salary left over that, after all of your expenses and other savings, makes its way into your final savings pot.
Rental income: this isn’t one that I have myself, but if you do then this is the category where it falls.
These are relatively frequent amounts but they are irregular both in amount and timing. You don’t know exact when and how much you’ll get from them. Some examples are:
A particularly good month for savings where you’ve spent less than usual. In the context of the Savings Fountain, think of it as when the Expenses Birds are less thirsty.
Matched betting income
In fact, almost any sort of self-employed, “non-salary” income will fall into this category. Just remember to set aside a certain portion of it to cover your taxes.
These are irregular AND infrequent amounts, often annual. “Splash” implies they might be larger than your Trickle and Drip, but this is not necessarily the case. Some examples are:
Annual bonus from work
Any income left over from the money you’ve set aside to pay your taxes once you’ve settled your annual tax return, assuming you’ve been overcautious.
Heron Bucket overflow – I explained the purpose of the Heron Bucket in the Savings Fountain post. It is the savings you’ve built up in regular amounts over the course of the year that then become your fund the next year for larger, one-off expenses. If you’ve still got money left over from the previous year’s Heron Bucket then that money can go into your savings pot.
Lottery winnings! Don’t hold your breath on that one.
Any other types of income I’m missing? What different methods do you use to give yourself the psychological boost to save more money?