Build a System That Forces You to Save

We all know the theory behind saving money, but most of us simply fail to do it. Some people are unable to save because they are just broke — the money simply isn't enough to get them from one month to the next. Others, however, earn enough that they could actually save something.

And when I say "save something," I don't necessarily mean saving thousands of euros every month. In my mind, even managing to put one euro aside counts as saving. It may not seem like much, but the exercise itself is far more important than the absolute amount you save.

Imagine that the game of not spending money is like a sport that we're just starting to play, with absolutely zero experience. The more often we play, the better we become at it. The logical question is: how do we solve this problem? The simplest approach would be to take our entire income and divide it into percentages in the healthiest way possible.

Your current lifestyle may simply not match your financial reality. This means that once you divide your income according to the percentages I recommend, you may discover that some of your expenses are simply too high. And that means only two things: either you need to reduce your expenses and downgrade your lifestyle, or you need to increase your income. When we reach the end of the month and run out of money, in the end, it's all just mathematics.

Here is the spending plan I propose, expressed as percentages of your monthly net income. These values represent limits that we should stay under: 10% savings, 30% housing, 15% food, 15% child and education, 10% transport, 5% insurance, 5% recreation and lifestyle, 10% first buffer reserve.

Savings — 10%

As I already mentioned, when you receive your salary, you should immediately set aside 10% into savings. These funds can be divided further into three subcategories: one third into an emergency fund, one third into medium- and short-term investments, and one third into long-term investments. The emergency fund provides protection against unexpected expenses, and if it is used, it should be replenished as quickly as possible. Examples of unexpected expenses include car repairs, home repairs, medical issues, temporary loss of income, or fines. This emergency fund should be at least three times your monthly net salary.

Housing — 30%

Housing is the main expense in any financial portfolio. Unfortunately, costs have increased and will likely continue to increase in the coming period. Within these 30%, you should include not only mortgage payments or rent, but also utility costs, including internet and property-related taxes.

Although 30% may seem like a significant portion of your income, the reality is that in some regions housing costs have risen far beyond this level. Most of us should probably downsize. Even if we remain below that 30% limit, if we can comfortably live with housing costs of 15%, then 15% should be enough. But how many of you are actually willing to make that sacrifice? We all want to go to heaven, but how many of us are willing to die to get there? How many of you are willing to give up some of the comfort you currently have just to save a little more money?

I'll be honest with you: I probably wouldn't be willing to do it either. I would probably downgrade my housing only as a last resort. But if I make that choice, I also have to accept that the additional expenses have mathematical consequences. In the end, everyone is free to decide how they want to distribute their money. The problem is that without a strict and clear plan — one that we actually stick to — our chances of consistently saving money are very small.

Food — 15%

Spending 15% of your salary on food does not allow for extravagant meals, which is why I recommend focusing on foods such as vegetables and fruits, which are generally cheaper and also healthier.

Child and Education — 15%

Costs in this category can vary significantly. You can make savings in many areas, but never in your education or your child's education. That is why you should also treat it as a minimum of 15%.

Transport — 10%

This category includes not only car loan payments or leasing rates, but also all associated expenses, including fuel and vehicle maintenance. If you live in a city where public transportation is sufficient, it is worth analyzing whether you truly need a car.

Transportation costs are among the expenses that have increased significantly lately.

By the way! Have you thanked Trump for that? "Thank you, Donald! You are the best!"

Insurance — 5%

Depending on where you live, this percentage may be too low, because when you combine car insurance, home insurance, health insurance, and liability insurance, it is easy to exceed this 5% limit. You should carefully evaluate what types of insurance you truly need. Most of the time, you do not need all of them, and the companies selling these products are doing it primarily for profit. When you buy home insurance, you are helping a business generate income.

Lifestyle and Recreation — 5%

This is the category that will hurt most people, because this is where the majority of money is wasted. And we do it so often and so naturally that we do not even realize how much money we throw away. The problem isn't just that we spend a lot of money in this category — money that we could otherwise save. The problem is that, more often than not, we exceed that 5% limit by a significant amount.

This is where most of our money gets wasted, because whenever we actually manage to save something, we often feel the need to celebrate by spending money in exactly this category. After all, if I manage to save 200 euros, don't I deserve to spend 100 euros on dinner at a restaurant? I can afford it. I deserve it! Besides, that was money I wouldn't have had anyway if I hadn't managed to save it. It's exactly the same kind of stupid logic used by someone who buys something they don't need simply because it's 50% off, and then proudly tells everyone how much money they "saved."

Another example is Kevin O'Leary from Shark Tank. He constantly criticized people who bought coffee from stores instead of making it at home. His math — 20 cents at home versus 5 dollars in the city — was hard for me to understand at the time. I saw him as a stingy rich man behaving strangely. After all, it was just five dollars for a coffee. Everyone drinks coffee. It took me about three months of personal reflection to realize that I was the problem, to realize how wrong my thinking was, and that only a fool would pay five dollars for ten cents' worth of coffee and sugar water. I honestly believe I will never again buy coffee from one of the big chains.

Why would you buy a five-dollar coffee from Starbucks when you could buy five dollars' worth of stock? Why not make coffee at home and buy a small part of the company instead?

Buffer Reserve — 10%

The final 10% of your remaining money should act as a buffer to absorb expenses that overflow from any of the categories mentioned earlier. As a first protective barrier, these 10% act as your buffer reserve.

The second financial support is your emergency fund, one third of the 10% savings that you set aside every month. In this way, not only are you tracking every dollar you spend, not only are you adapting your financial needs to your situation, but you also build two protective barriers in case unexpected storms arrive. And despite all this, you still manage to save money. You have built a system that actually gives you a chance to save money.

After you reach the end of the month and successfully save money, try to see those savings as money that is already gone — money you never had in the first place. Do not allow yourself to spend it as a reward for saving. So you see, saving money is not actually that difficult — at least in theory. The only condition is that your spending limits are clearly established at the beginning of the month, that you don't exceed them, and that the money you intend to save is set aside immediately at the beginning of the month.

Depending on the region or country you live in, these percentages may vary slightly. You can adjust them so they make sense for your situation, but try not to move too far away from this general structure.

And remember, once you set aside that first 10% at the beginning of the month, any extra money left at the end of the month should also go into savings — first to build your emergency fund, and after that into long-term and medium-term investments.