ENG ver.
Hello, this is Pooh-san.
In this blog post, I will provide a detailed introduction to “preemptive savings.”
Many people struggle with the challenge of not being able to save money or frequently spending it without much thought.
It’s common for monthly income to disappear quickly or for bonuses to be spent entirely.
However, by utilizing preemptive savings, you can consistently save money every month.
I personally use the preemptive savings mechanism to engage in monthly investment contributions.
Even though I’m not good at saving money, I have managed to accumulate financial assets of approximately 4.8 million yen over a period of five years (as of April 2023).
In this article, I explain in detail the benefits and recommended methods of preemptive savings.
What is Preemptive Savings?
Firstly, preemptive savings is a method where you save a predetermined amount from your monthly income in advance.
As soon as you receive your salary, you immediately transfer a certain amount to a savings account. For example, if you earn 200,000 yen, you save 30,000 yen each month and live on the remaining 170,000 yen.
Preemptive savings can help you curb unnecessary spending. When money is readily available, it’s easy to spend it without much thought. However, by living on the remaining amount after saving, you can reassess your spending habits.
Methods of Preemptive Savings
Preemptive savings can be effectively achieved through automatic deposits into fixed-term savings accounts or automatic contributions to investment trusts.
Automatic Deposits into Fixed-Term Savings Accounts at Banks
Banks offer a convenient service called automatic deposits into fixed-term savings accounts. With this service, money is automatically transferred from your regular account to a fixed-term savings account, and you can freely set the deposit date and amount.
For instance, if you set up an automatic deposit on your payday, the funds will be transferred to your savings account as soon as your salary is deposited. Even though it’s called a fixed-term deposit, it can be easily canceled or withdrawn if you use online banking.
This service is available at major banks, Japan Post Bank, Rakuten Bank, and many others.
Automatic Contributions to Investment Trusts
My recommendation is to set up automatic contributions to investment trusts. While saving money in cash is fine, it’s important to know that the current interest rates offered by banks are extremely low.
Mega banks and Japan Post Bank offer interest rates of around 0.002%. (Even if you deposit 1 million yen with a bank for one year, you would only earn a mere 20 yen in interest…)
In contrast, by diversifying the risk through investment trusts, you can expect a steady annual return of around 3-5%. Especially, products known as “index funds” have high risk diversification capabilities and lower fees.
Similar to preemptive savings, you can set a monthly contribution amount for investment trusts. On a predetermined date, cash is automatically withdrawn, and the investment is made in the trust.
Additionally, I recommend using a “Tsumitate NISA” account for those who are starting with investment trusts. Not only is the tax exemption applied upon sale, but you also have access to selectively chosen investment products, making it very convenient.
Tips for Preemptive Savings
Track your monthly income and expenses
Before starting preemptive savings, it’s important to track your monthly income and expenses.
Since you will be living on the remaining amount after saving, it’s necessary to accurately calculate your monthly living expenses.
Using a spreadsheet like Excel to summarize your income and expenses can be helpful.
Do not cut necessary expenses for preemptive savings
Also, it is important to avoid engaging in preemptive savings by cutting necessary expenses.
Self-investment and necessary expenditures are important, so try to reduce unnecessary expenses without missing out on opportunities to save.
It is also important not to set an unrealistic savings amount for preemptive savings.
Setting a large savings amount that burdens your lifestyle can lead to increased stress.
Gradually improving your expenses within a manageable range leads to long-term sustainability.
Increase the savings amount once you get used to it
Once you get used to it, try gradually increasing the savings amount.
When you have a grasp of your monthly living expenses, you can see if there is any room for extra savings.
By gradually increasing the savings amount, you can steadily accumulate funds.
However, be mindful of increasing the amount within a manageable range.
I have also been gradually increasing my investment amount since I got used to it.
先取り貯金の効果を検証してみます。
最近買いたいものがあまりないので、投資信託の積立額を楽天カード決済上限額5万円まで増やしてみます。
給料は少ないけど、まだまだ無駄遣いが多いので、先取りで積み立てておけば案外いけると思う。
無理だったら金額変更すればいいだけ。#積立投資 pic.twitter.com/bs4D4y8cTr
— かねのぷーさん＠墨田区の少額投資家 (@poohlivestokyo) February 7, 2021
Summary
In this post, I introduced “preemptive savings.”
Preemptive savings is a method where a predetermined amount is saved in advance from your monthly income.
By engaging in preemptive savings, you can allocate a fixed amount for savings every month.
Specifically, automatic deposits into fixed-term savings accounts and automatic contributions to investment trusts are recommended methods.
Considering the low interest rates offered by banks, I personally believe that investing in investment trusts and earning a few percentage points can lead to more reliable asset formation.
Make sure to take advantage of beneficial tax systems such as Tsumitate NISA.
However, it is important to understand your income and expenses and gradually increase the savings amount within a manageable range.
Avoid putting too much pressure on your living expenses or cutting necessary expenses.
Incorporating the mechanism of preemptive savings within a manageable range and gradually increasing the savings amount while reassessing your income and expenses can lead to financial freedom.
I encourage you all to give it a try.
Thank you for reading this far.
JPN ver.
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