K. WOODWARD PERSONAL FINANCE
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The "Look But Don't Touch" Account

8/12/2012

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Every couple of years I re-read "The Richest Man in Babylon" by George S. Clason. It's only 150 pages long or so but the principles on money management taught in this book are timeless. I love the book so much that I keep a few spare copies to give away as gifts whenever the opportunity arises.

Strange but true: if you put aside one-tenth of your income and only allow yourself to spend nine-tenths you will not struggle any more (or any less) than you did before.

"How?" I hear you ask. "I already struggle to make ends meet. There is no way I can save." 

Try it! That's all I ask.

This principle is the start of bringing your money under control. If you only have one bank account create a new bank account because it is almost impossible to save if the money is coming out of the same pot.

At the end of every month, when you receive your pay check take 10% off and place it into your LBDT account, the Look But Don't Touch account. Think of this money as though it isn't even yours. That money has been sanctioned by God for a greater purpose. If it makes it easier, look upon these savings in the same way as you do tax - someone else's money.

When I started saving in this way I took it very seriously. If someone asked me for money when I only had LBDT funds left, I would tell them I was broke because I was - the money I allowed myself to spend, had been spent. (Next week we will develop a strategy for killing your debts off so that you don't have any issues with creditors.)

If you use this strategy don't make the mistake of telling people that you have money but you can't touch it; they won't understand. This is your secret and is the start to building your asset base.

I created such a great psychological barrier between me and my LBDT money that I couldn't just spend it with ease.

Save First.

Prior to making any other plans 10% of your disposable (post-tax) income must be placed in a separate account. 

So what is this money for?

It's for the big goal you are working towards. Buying a plot, building a house, starting a business, whatever that big plan is.

That said, in the current inflationary environment it is not advisable to save for too long. You might save for six months then find that your hard-earned savings are made worthless by a steep hike in inflation or a currency devaluation.

What's the solution?

Break your goal into "baby steps". So, if you are building your own house the next step might be buying a load of bricks or some bags of cement. As soon as the capital in your LBDT account reaches the amount needed to complete step one, spend it and start saving towards step two.

When your savings have a purpose it is so much easier to save. 

Actionable steps for this week:  
  1. Open a new savings account
  2. Write down your big money goal. If you can convince your husband to work this exercise with you, it will be more fun. Perhaps you can both start saving in this way.
  3. Break down that money goal into "baby steps"
  4. Watch your assets grow!

"Faith is taking the first step even when you can't see the whole staircase." Martin Luther King, Jr

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    Heather Katsonga-Woodward
    For 2 years until early 2014 I wrote a weekly personal finance and business column for Malawi's leading media house, The Times Group. The target is middle-class, working African women.

    This is a reproduction of the articles that appeared in the weekend edition of Malawi News.

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© 2007 - 2021, The Money Spot™ ~ Make Money, Change Lives!
Heather Katsonga-Woodward, a massive personal finance fanatic.
** All views expressed are my own and not those of my employer ** Please get professional advice before re-arranging your personal finances.
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