The Chinese Secret to Saving Money Revealed | Entrepreneur (2024)

In Chinese culture, saving money is a tradition that is supported by many values. According to reports, the country has one of the highest saving rates in the world, at 46 percent of GDP.

What is behind the Chinese's excellent savings habits?

There is definitely a cultural component to it, says Humphrey Yang, a successful entrepreneur and former financial advisor. Our American culture is flooded with sales and discounts, financing options, and free quotes. We're always under pressure to keep up with our neighbors

It's a different story in China. Due to their cultural values as well as the demographics of the country, they place a high priority on saving money. You'll also find a strong aversion to financing in China. In general, Chinese people prefer paying cash for things rather than financing them.

In addition, Chinese people like to save money because they understand the meaning of it. From a very early age, kids are taught that saving money is honorable. New Year's and birthdays can be filled with money in these red envelopes. It is often encouraged by their parents for them to save this money. As a result, this money is known as lucky money.

According to Yang, the one-child policy of the 70s and 80s was also a factor. Since most families had one child, they didn't have multiple kids, so they were able to save more money by not having to feed multiple children.

Due to the one-child policy, parents did not have to spend so much money, and males also tried to save money to make themselves desirable.

Furthermore, Chinese people cannot contribute to 401Ks, IRAs, or retirement accounts. Instead, they have a pension system. Nevertheless, many people in China are concerned about how long the pension system will last.

In essence, these are some of the main reasons Chinese people save money, he adds. The Chinese secret to saving money, however, deserves a closer look.

The secret? Zero-Based Budgeting System.

In zero-based budgeting (ZBB), all expenses must be justified and approved in each budget period, usually annually. The system was developed in the 1970s by Peter Pyhrr, an accountant at Texas Instruments.

By starting with a "zero base" (meaning no funding allocation) at the beginning of every period, this budgeting method analyzes all your needs and costs. The goal is to determine if services can be provided at a lower cost to get a better return on resources. However, you have to reorganize every budget cycle to save money.

A zero-based budget has these key features:

  • Every expense has to be justified from scratch. No matter if it was funded in the previous budget period, each expense has to be reviewed and approved.
  • It's all about efficiency and effectiveness. Every dollar spent needs to be evaluated critically and used efficiently and effectively.
  • It can save you a lot of money. Saving money is easy with ZBB since it eliminates unnecessary spending and identifies more efficient ways to do stuff.
  • The process can be complicated and time-consuming. It can be tough to implement ZBB in large companies because it takes a lot of analysis and planning.

The advantages of zero-based budgeting include:

  • Unnecessary spending can be identified and eliminated. Organizations can identify areas where they're spending money on things that aren't necessary by requiring all expenses to be justified from scratch.
  • You can improve efficiency with it. With ZBB, you can find more efficient ways to spend your money.
  • It's a good way to improve accountability. In order to make sure resources are being used wisely, ZBB requires you to justify your spending.

A zero-based budget does have some downsides, however:

  • It's a long and complicated process. ZBB takes a lot of planning and analysis, and it can be hard to implement.
  • You might find it disruptive. As ZBB requires a complete review of all expenses, it can be disruptive.
  • It's not easy to maintain. After ZBB is implemented, it's hard to maintain because you have to review your expenses constantly.

In general, zero-based budgeting identifies and eliminates unnecessary spending, improves efficiency, and promotes accountability. But it's a complicated, time-consuming process that can be hard to maintain.

In addition, Mr. Yang provided four additional tips.

First, don't indulge in luxury goods.

Yang states that Chinese people save money by not buying luxury goods or status symbols. They want to stay humble and fly under the radar. As a result, they usually avoid luxury items.

But there are also a lot of reasons why you shouldn't indulge in luxury goods, like:

  • Most luxury goods are overpriced. Luxury goods often come with high markups, meaning you are paying more for the brand name than the quality.
  • Luxuries are not essential. It's possible to be happy and fulfilled without luxury goods. A lot of people find that focusing on experiences rather than possessions makes them happier.
  • Luxury goods can drain your bank account. It's easy to overspend on luxury goods if you're not careful.
  • It is a status symbol to own luxury goods. Luxury goods are often bought to display wealth. It is, however, shallow and materialistic.

Sometimes it's okay to indulge in luxury items. It is fine to splurge a little if you've saved up for a special occasion or for a job well done. Nevertheless, you should do so in moderation and make sure you do not overspend.

To avoid luxury goods indulgence, follow these tips:

  • Stick to your budget.
  • Before you shop, make a list of your needs and wants.
  • Instead of buying luxury goods, rent or borrow them.
  • Put experiences before possessions.
  • Don't show off your wealth or status by buying luxury goods.

With these tips, you will be on your way to living a more financially responsible life and avoiding indulgence in luxury goods.

Second, follow the 10:1 rule.

Chinese people usually spend only a tiny percentage of their earnings when earning money, adds Yang.

As an example, Yang's dad tried to live off one dollar each time he earned ten dollars in his career. Realistically, this wasn't always the case. To make ends meet, he would sometimes have to spend six, seven, eight, or nine of those ten dollars. The idea of saving money wasn't for him to build wealth; it was more to ensure he never got hungry at night.

This simple principle of saving money and living off of the bare minimum is a great one to follow.

Yangs warns, however, that this could create a scarcity mindset about money. In other words, as you earn more money, you will be able to shift your mindset into more of a mindset of abundance.

Third, prioritize needs over wants.

Another way that the Chinese save money is by prioritizing their needs over their wants.

Basically, if you need something and need to pay for it, then do it. This is especially true if it is for your health, suggests Yang.

Assume that you work from home, and you're considering an ergonomic chair vs. a flimsy desk chair. A good ergonomic chair might help you stay healthier throughout the day and make you more comfortable. As long as it is within reason, Yang would consider the ergonomic chair to be a need.

Here, we are talking about spending moderately, choosing smartly, and saving where we can. You can still buy what you want as long as it is of good value, says Yang.

The following tips will help you prioritize needs over wants:

  • Make a list of your needs and wants. As a result, you'll see what's truly important to you.
  • Categorize your needs and wants. This will make prioritizing easier. You might categorize your needs as follows:
    • Essential. You absolutely need food, shelter, clothing, and transportation.
    • Important. Despite how beneficial they are to your life, you could live without them.
    • Luxuries. What you wish you had but don't need.
  • Set financial goals. Financial goals can be set once you know your needs and wants. By doing so, you will stay focused on your priorities and spend your money wisely.
  • Make sacrifices. In order to prioritize your needs, you may have to make sacrifices. For example, when you need a new outfit, don't shop at Gucci. Despite short-term sacrifices, prioritizing your needs will pay off in the long run.

Being able to prioritize needs over wants can be challenging. But, you will be setting yourself up for financial success and happiness if you take care of your basic needs.

Fourth, eat at home.

To save money quickly, the Chinese advise staying home and eating at home. In most cultures, we all know that eating out is expensive and wasteful. In fact, Americans dine out 5.9 times a week and spend about $3,500 on eating out every year, or a little more than $300 each month, according to BLS data.

The following tips will help you eat more at home:

  • Plan your meals ahead of time. As a result, you'll be able to avoid making impulse decisions and ensure that everything you need is readily available.
  • Cook in bulk. Using this method will save you both time and money. Don't forget to cook extra portions and freeze them for later use.
  • Keep your pantry stocked with healthy ingredients. In times of a time crunch, this will help you whip up a quick and easy meal.
  • Don't be afraid to experiment. Whenever you cook at home, you have endless possibilities. Let your imagination run wild and have fun.
  • Host a group dinner. If you want to socialize with family or friends, plan a dinner at home. If you really want to save some dough, make it a potluck.

Of course, you can still go out to eat. Yang, however, recommends saving this for special occasions, like birthdays, anniversaries, or holidays.


How much money should I save each month?

Saving 20% of your income each month is a good rule of thumb. It is important to note, however, that this number may vary according to your individual circumstances.

Saving less may be necessary if you are in a lot of debt. A single person or someone without children may be able to save more money.

What are some tips for saving money?

Saving money can be achieved by following these tips:

  • Make a budget and keep track of your spending.
  • Put your savings on autopilot.
  • Spend less on unnecessary items.
  • Take advantage of every opportunity to earn more money.
  • Maintain a savings goal and track your progress.

How does saving money benefit you?

  • Emergencies. You can use the money you save to cover unexpected expenses, such as a medical bill or a car repair.
  • Job loss. In the event you lose your job, having savings will help you pay your bills until you find a new job.
  • Big-ticket items. When you save money, you can purchase big-ticket items, such as a new car or a house down payment.
  • Debt. You can save on interest fees if you save money to pay off debt faster.
  • Retirement. Investing in retirement can help you live comfortably in your old age.

What are some common mistakes people make when saving money?

When it comes to saving money, people often make the following mistakes:

  • Not having a budget. Keeping track of your spending will help you identify areas where you can cut back, which is the first step to saving money.
  • Savings are not automated. By doing this, you will always be saving money every month, even if you forget.
  • The lack of specific goals. You will be more motivated to save money if you have specific goals.
  • Not being patient. If you don't see results right away, don't get discouraged. Saving money takes time and effort.

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Chinese Culture and Saving Money

The Chinese tradition of saving money is deeply rooted in cultural values and societal norms. The country has one of the highest saving rates in the world, at 46 percent of GDP. This exceptional savings habit is influenced by several factors, including cultural values, demographics, and historical policies such as the one-child policy.

Cultural Values and Saving Chinese culture places a high priority on saving money, instilling the value of thrift and financial prudence from an early age. Children are taught the honor of saving money, often receiving monetary gifts in red envelopes during New Year's and birthdays, which are encouraged to be saved. This practice fosters a strong understanding of the significance of saving from a young age.

Demographics and Historical Policies The one-child policy implemented in the 70s and 80s also contributed to higher savings rates. With fewer children to support, families were able to save more money, leading to a culture of financial prudence. Additionally, the absence of traditional retirement accounts like 401Ks and IRAs in China has further emphasized the importance of personal savings and financial planning.

Zero-Based Budgeting System

The Chinese approach to saving money also involves the use of a zero-based budgeting (ZBB) system. This budgeting method, developed in the 1970s, requires all expenses to be justified and approved in each budget period. Key features of ZBB include:

  • Justification of Every Expense: All expenses, regardless of previous funding, must be reviewed and approved in each budget cycle.
  • Focus on Efficiency and Effectiveness: ZBB emphasizes critical evaluation and efficient use of every dollar spent.
  • Identification of Unnecessary Spending: ZBB helps identify and eliminate unnecessary expenses, improving overall efficiency and accountability.

Additional Tips for Saving Money

In addition to the cultural and budgeting aspects, Humphrey Yang, a successful entrepreneur and former financial advisor, provided four additional tips for saving money in Chinese culture:

  1. Avoid Indulging in Luxury Goods: Chinese people prioritize modesty and avoiding luxury items, focusing on experiences rather than possessions. Luxury goods are often overpriced and not essential, draining financial resources unnecessarily.

  2. Follow the 10:1 Rule: Chinese individuals often aim to live off a small percentage of their earnings, emphasizing frugality and minimalism to build financial security.

  3. Prioritize Needs Over Wants: Emphasizing the importance of distinguishing between essential needs and discretionary wants, Chinese individuals focus on spending moderately and making smart financial choices.

  4. Eat at Home: To save money, the Chinese advocate for eating at home, emphasizing the cost-effectiveness and health benefits of home-cooked meals.

FAQs about Saving Money

The article also addresses common questions and provides tips for saving money, including the recommended percentage of income to save, tips for saving money, the benefits of saving, and common mistakes to avoid when saving money.

In summary, the Chinese approach to saving money is deeply rooted in cultural values, historical policies, and practical financial strategies such as zero-based budgeting. These practices reflect a strong emphasis on thrift, efficiency, and long-term financial security within Chinese culture.

The Chinese Secret to Saving Money Revealed | Entrepreneur (2024)


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