In his best-selling book, Atomic Habits, James Clear eloquently suggests: “We don’t rise to the level of our goals, we fall to the level of our systems.”

For most people, establishing a savings system while climbing out of debt is an excellent long-term strategy.

It seems counterintuitive to do anything other than put every extra cent toward our debts. While this may feel like the best approach, it also fixates on only one mechanism of wealth management. If all we do is worry about our bills. Bills might be all that we get.

Instead, it’s best to make a case for implementing healthy saving habits that will help boost your net worth in the long term, even before you are entirely out of debt.

Compartmentalizing your money works

I didn’t believe it was necessary or even beneficial for the longest time to separate my money into different accounts or categories depending on its intended use. So up until a couple of years ago, when I truly began my financial recovery journey, I had one big messy slush fund. 

If I could generally afford the things I wanted, I felt I was doing okay. However, if I had to lean on the credit card(s) a bit too much, then I knew I’d have to dial back the spending for a bit. That’s it, that was the “system.” 

Not surprisingly, this led to no emergency fund, no savings account, no investing account, no appreciating assets. And in the long run, a whole bunch of consumer debt.

All I had was an avoidant attitude toward money and an underappreciation of personal finance’s psychological art and mathematical science.

How do you get on track financially?

Once I started to track my money (a critical step to any financial recovery plan), I could see all the places it was going — without psychological justifications or biased mathematics. 

Allocating funds in advance of monthly and one-time expenses better allowed me to understand my financial situation. I also found the objectivity of a spreadsheet to be surprisingly comforting. 

For years, I feared that if I took a good hard (honest) look at my finances, I would be crushed by the dark reality of how deeply in debt I had become. Instead, what happened was that I became empowered by the courage and commitment I showed myself by stepping up to the challenge of turning things around.

My money compartmentalized: income, assets, liabilities and expenses replaced the slush fund approach. Whenever circumstances change, I reflect those changes in my spreadsheet and objectively track against my goals.

The objectivity of having my finances in this format reduces poor financial decisions because I can immediately see the impact unnecessary spending has on my net worth. Of course, I’m not perfect, but as long as I keep tracking and stay committed to the process, my situation continues to improve.

The focus can’t just be on your debt

By only paying off debt and not establishing a savings plan where you make consistent contributions, you may fall into the trap of a never-ending reality of debt. 

If all you do is make monthly payments on things, you’re not practicing building wealth. You’re just getting better at financing debt. As you increase your means via raises, side hustles, negotiation terms, eliminating non-essential spending, etc., you may be drawn to adding another monthly bill with your newfound money. 

A fancy car, the newest iPhone, and a premium subscription will always be attractive options for spending our money. And when we don’t have to pay up-front, it feels like we can afford it. Acquiring the credit do to so is relatively easy, by design, but it also keeps us in the same lending cycle.

What if, instead of borrowing, we started saving those additional funds we’ve worked for? What if we exposure ourselves to delayed gratification instead of the instant type we’ve likely become addicted to in one way or another?

We don’t know what we’re missing until we see firsthand the psychological benefits of accruing money in a savings account. It is not until you start saving that you can truly get your head around the fact that being wealthy isn’t about how much you make; it’s about how much you keep.

When saving, even if your net worth will be negative for a while, it is still an incredible feeling to see those savings pile up. It gives you a glimpse into your potential to build wealth. Set it up. Give it time. Be patient. Thank yourself later.

Separate your savings and investments

The most critical part of this plan is to save in a place that you cannot easily access. This started with a Registered Retirement Savings Plan (RRSP) that my employer set up. 

I was so in the dark with my own money; I didn’t even realize that I had over $10,000 in my account when I decided to resign from that job. I never checked on it online or bothered to review the statements I got in the mail. I just kind of just forgot all about it. Unwittingly, I was taking a wise approach to saving.

At the outset, I opted to go with the 3% contribution amount to maximize my employer’s matching incentive; also 3%, and I left it at that. These programs vary in how they are structured and the maximum contribution your employer will provide, but they are an instant return on your savings efforts. So, if you’ve got an employer contribution savings plan, max it out! If you don’t, ask them why not!?

If you’re like me, and you’ve tried to amass some money in a savings account that is on the same online platform as your chequing account, it may not have worked. It sure didn’t for me. It is as simple as making a quick transfer from one account to another, which takes seconds and comes with no consequences. That is an example of failing to design your system. 

It would help if you made it difficult to access the money — even better, if removing the funds came at a cost. With the RRSP contribution plan I mentioned above, withdrawals are taxed, which removes the temptation. You’re not going to forego some of that money to tax, so you may as well keep it there. That’s why RRSP plans are great for long-term investing, such as your retirement or goals that exceed ten years. If you have a history of difficulties with accruing savings and want to save up outside of an RRSP, think of other ways to make the removal of funds non-attractive or impossible.

Starting small is better than not starting at all

Even if it is only $5 per paycheque, set up your system for saving with and commit to it. Over time you’ll contribute more and more to your savings plan, and you’ll be happy you started with something.

Even amongst the wealthy, there is a common regret: “I wish I started earlier.” Well, the best time to start saving was yesterday, and the next best time to start is today, so don’t wait until tomorrow!