A financial strategy is gaining traction by offering an alternative to conventional saving: setting aside funds before any spending. The concept of ‘pre-saving’ proposes a financial management methodology that differs from the usual practice of most people. Traditionally, saving is considered to be what remains of one’s income after all monthly expenses have been covered. This new approach seeks to offer a more effective alternative.
In contrast to this model, pre-saving proposes a proactive action: allocating a certain amount of money to savings immediately after receiving income. The method recommends transferring this sum to a separate account or a specific savings instrument for this purpose.
By making this transfer at the beginning of the economic cycle, the amount allocated to savings is no longer visible for daily expenses. This reduces the possibility of using these funds on impulse or out of perceived need, thus making it easier to meet the savings goal without additional effort. In this way, an automatic discipline is established from the beginning of the month.
The psychology behind the ease of saving
Behavioural economics experts point out that traditional saving can be difficult due to the human tendency to prioritise immediate gratification over long-term future benefits, according to BBVA. This ‘myopia’ towards the future makes it difficult to connect with financial needs that may arise later on. Deferred rewards are often valued less than instant gratification.
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The pre-saving method seeks to mitigate this bias by transforming the act of saving into a commitment that, although decided today, is executed automatically. By turning savings into another ‘fixed expense,’ the decision to set aside money happens once, and the daily budget is adjusted to the remaining amount. This approach makes saving a non-negotiable item from the beginning of the month.
Setting the exact amount to pre-save each month depends on individual and family financial circumstances. There is no single figure that applies to all cases; it is advisable to analyse your personal financial situation to determine a realistic estimate of your savings capacity.
The process involves first calculating all regular income, including not only salary but also other possible sources such as rent, financial returns or royalties. Next, expenses should be reviewed, distinguishing between essential fixed costs and those that could be adjusted. Including items for contingencies and leisure completes the financial picture.
Financial experts suggest starting the habit of saving from a young age, if possible. It is estimated that around 20% of monthly income would be a good target, but the key is to be consistent, starting with a smaller amount if necessary and increasing it gradually. According to analysts, the current rise in interest rates is beneficial for long-term savings.
The objectives for implementing pre-saving can be diverse, ranging from short-term goals such as buying a car or taking a major trip to long-term goals. The long-term vision includes improving personal financial health, supplementing future retirement pensions or, for some, aspiring to total financial independence.
So-called ‘financial freedom’ refers to a person’s ability to maintain their standard of living without depending on active income, i.e. without the need to work. It is calculated by dividing total savings by annual expenses, although inflation is an important factor to consider in this projection. Achieving it means that savings and investments cover living expenses.
