"The secret to getting ahead is getting started..."
Sorry, didn’t mean to startle you. Or bring you out in hives?!
Unfortunately, that’s how it is for many money issues. Spending money, that’s FUUNNN. Saving it? Planning for the future? Is that paint I’m watching dry?
Early retirement, financial freedom, all those things sound lovely. But they are like exercise. Today you make the effort. Today you feel the sweat. And you feel righteous. But there’s no ‘hit’, no instant transformation, no quick reward. The change is unseen. Slow to build. Tiny little increments on a seemingly very low base.
It’s not like buying a car. That's something you can show off. No wonder 'saving' (and exercise!) quickly feels like a chore.
Meanwhile, temptation. With exercise, we hit the sofa rather than the streets. With money, we splash our spare cash on nights out. On latest gadgets. Yes, on that flash car. How can anyone be disciplined enough to resist?
Sadly, it’s the small changes that are key. Someone you haven't seen for a while tells you how good you look. Then there's the personal best. You're two inches slimmer. That fitness appeared without you even noticing. While walking the dog, playing with children or taking the stairs.
You can also get wealthy without noticing. With a straight-to-savings direct debit. Which increases in size with inflation. Or wages. And is set up for the day you get paid.
“Don’t save what you have after spending, spend what you have after saving”
Warren Buffet, CEO of Berkshire Hathaway
We all need to take some time to look at money dispassionately. Perhaps on a cold Sunday afternoon when there is nothing better to distract.
Three months bank statements, a planning sheet. And a large cup of strong coffee. Sit down. Then, line by line, total everything up.
Not just what you’ve been spending but what you've been spending where.
Some things you can’t do much about: the cost of your commuter train, council tax or car tax. But you can do something about energy bills and about insurance. About the cost of your lunch, and how many coffees you might buy. And about bank charges.
(Don't worry, your morning coffee is safe. We're not monsters!)
You'll soon see where the real money is going. And what you can more easily give up. All you need to do then is work out a way to make yourself accountable for it.
For which, this might help…
The Power of Three
Imagine if your spending was separate from the money you needed to pay bills. How much easier would it be to monitor what was going on? If you could see instantly, on your smartphone app, how much you'd spent this month - and what you had left?
Well, there is no rule that tells you how many bank accounts you can have. So get a second one. And use it just for your spending money.
Separating out money into buckets makes life much easier to plan. And ideally you should have 3 of them:
one for your spending money
one for your bills
one for your savings.
It’s that simple.
And even if it takes you a couple of months to get used to a fixed amount, at least you’ll start becoming more conscious about what's going on. Mindfulness, I think some people call it. Spending in 'the present'.
Stick with the programme
Have you heard of mission creep? The gradual, incremental broadening of the original objectives of a mission? So much that it eventually makes that original mission either a massive burden or perhaps even impossible to fulfil...
Overlook the military connotations for a second, though. In money, this is the single biggest mistake many of us make. With every pay rise, we allow our lifestyles to grow.
Even when our budget looks after us very well, we still use pay-rises, bonuses and windfalls as a reason to expand it further. We increase the HP payments on our car, we upgrade the TV, we buy more take-aways, eat out more often and choose more expensive wine.
Which means our budgets keep resetting. At higher and higher levels. Until saving for a future becomes either a massive headache or a mission we are completely unable to fulfil.
Everyone deserves to mark success with a treat. But how about splitting the difference 50/50? Half on a treat and half on your future. Or just on saving for a rainy day.
Seriously, everyone should start using this principle. It's amazing. Because...
You won't need to find a penny from your current budget to save
You'll still see the benefit of working hard and a treat every time you get a pay rise
The amount you actually end up saving escalates amazingly quickly.
And because you never let the half you save get into your pocket in the first place, you won't even notice that it's gone.