The one thing standing between you and financial security is in your head
Why is it that you find teachers that are financially secure all their lives and retire comfortably but CEOs earning 100 times more aren’t in the same place? It all boils down to one thing, spending less than you earn and investing the rest – for decades. Sounds simple right? Why is it then that so many people just can’t get it right? Essentially it has to with what is going on in our head. Our spending or saving habits are a result of years, often decades, of behaving in a certain way. Every time you behave in that way, the habit is ingrained in your psyche and changing it to get better outcomes very difficult. Difficult, but not impossible.
When you want to change a habit you can do it cold turkey or by taking baby steps, the method you choose is up to you but the problem with ‘cold turkey’ is that, unlike smoking or drinking, you still need to spend money. This is not unlike dieting, you have to eat to live, so you can’t just cut out all food. Crash diets rarely work in the long term, because the basic habit that caused the weight gain hasn’t been changed – changing poor financial habits are very similar. Slow and steady usually wins the race.
So, let’s take the principals of dieting and apply them to changing your spending habits.
- Know what you’re consuming. I hate to use a new-agey buzzword word but by becoming more ‘present and aware’ of what you’re doing with your money you will bring you closer to a better financial outcome. In the (good) old days it is the equivalent of not balancing your cheque book and leaving your envelopes of statements unopened. Today it is not much different, it is just all digital. The good new with that is that you can get the technology to put it in your face so you can’t ignore it. I am sure you’ve tried to have a ‘budget’ many times in the past, but they are time-consuming and depressing. Free apps like 22seven make this dead simple today, but you have to interact with it, set the categories and limits and watch the notifications when you’re going over your target. Make friends with your money. Start watching what is going in and out, and make your own assessment if that is helpful, that change alone will start to change your behaviour.
- Cut out the carbs. These days fat is good, carbs are bad – but either way, when you’re dieting you have to moderate the food-to-mouth disease if you want to lose weight. Once you’ve made friends with your money and put your consumption into categories you’ll soon find your weak spot (if you didn’t know it already). If you’re lucky, by watching your consumption you might also find long forgotten debits that can be killed off. If you’re paying for a loyalty program and not using the benefits, that alone can save you several hundred Rand month. What about bank fees? If the bank’s loyalty program isn’t virtually paying for that every month, look at changing banks. Use loyalty programs to their max, I personally get around R2,500 a month back on mine – and I am not talking about discounts.
- Don’t have the food in the house. In financial terms, having the bank/credit card instantly available – even embedded in your cell phone – makes it much too easy to consume. Show your brain something it can understand – cash. Once you have identified your weak spot, or the place you think you can save money, take the month’s allowance out in cash and stop using the card. Many banks allow you to get ‘cash back’ at the grocery till which costs you a fraction of using an ATM and is way safer. If you have cash left over at the end of the month then spoil yourself with a little treat or take out less next month and move the balance into savings.
- Out of sight out of mind. Make scheduled payments into savings and investments on payday. Know your ‘number’ – how much you need to save and invest every month to achieve your desired goal – say retirement or sabbatical. If your past history with retirement funds has been problematic (cashing in pension funds for example) then use the regulations to put it out of harm’s way in a retirement annuity that can’t be touched before age 55.
- Make it all a game. Dieting and budgeting are not fun, but if you can minimise the impact or even make it an interactive game, it will be much easier. When you’ve made friends with your money and know how much you ‘should’ have left over at the end of the month, move that money into a savings pocket on payday. Pay yourself first. Use a ’rounding up’ app like Stash (by Liberty) to slip a thousand or two into a tax-free account. This is not a ‘piggy bank’ but a long term investment so treat it accordingly.
- Check the calorie content. Just like there are hidden calories in food, many of your fixed expenses might also be hiding hidden fees or are just plain ‘bloated’. Get a professional Financial Planner to decode your policies and investments to check that you’re not overpaying. Make sure your Group Benefits are also taken into consideration. Your short term insurance should be reviewed annually – be careful of the ‘golden handcuffs’ of bonuses or cash backs unless they are monthly. Are you on the right medical aid, ask for a 2-year statement and do a ‘what if’ on a cheaper plan – would a hospital plan and your own emergency fund work better? Cut back on your water and electricity – it is easier than you think. I shaved R750 off my water bill with very little effort.
- Get a professional Financial Planner in your corner. Ironically having a professional or a ‘broker’ is probably going to cost you the same. The regulatory environment around brokers/ advisors/ planners is changing, especially when it comes to remuneration and unfortunately this is going to mean that people who need the most help are probably not going to be able to afford to secure the services of a professional, and the days of ‘free advice’ we have gotten used to are over. You need to get holistic advice on medical aid, short term insurance, life cover, estate planning and investments – it can be difficult to cut through the chorus of ‘pick me!’ so how do you do it? Look for advice that means no remuneration for a broker – a savings pocket or putting more money in your bond as opposed to try and sell you something new (by cancelling your existing policies).
Action: If you can change the mindset from a ‘nett spender’ to a ‘nett saver’, your future self will throw you a huge retirement party! Get professional help – but you may need to pay for it if you want it to be independent.
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Author Dawn Ridler ©