It's all mind games

“An investment in knowledge pays the best interest.”

– Benjamin Franklin 

Savings Habits and the Savings Mentality

The following are just some small things you can do in your daily life that can help you in your path to financial enlightenment. Some are harder than others, some take much longer than others, but all can be achieved by anyone that is willing to change for the better.

Do and implement the easiest tasks first. This is called the low hanging fruit, because of how easy it is to do and it can give you a lot of result for little effort.

Out of the 2 ways to increase your savings (more money coming in, or less going out), it is far easier to control what is going out.

1. Get to work early and eat the free breakfast (toast, cereal, milk, fruit etc).

Key Message: Utilise the things around you

Not only will you show your boss/manager/ team leader that you are a committed worker by coming in early, you will save so much money each day by turning up a bit earlier and eating the free food, and making your own coffee. Coffee and toast outside is about $5 right?

$5x 250 working days a years = $1,250. How many more hours of work do you have to do, to recoup that amount?

You’re thinking – Kai, you are out of your mind. Even 20 minutes earlier to work means 20 mins less sleep. Well, do you really notice any difference in how alert you are with 20 minutes extra sleep?

If you plan to arrive early at the office, you generally can make it on time to work even if there are delays on your train or other circumstances, because of that time buffer you have created. You are also known in the office to be dependable and punctual, which never hurts ones’ reputation.

This plan is very good, as it can BOTH increase the inflows (potential raise) and also stem the outflows (saving money spent on food). DOUBLE EFFECTIVENESS. Oh Yeah.

2. Think of expenses not in monetary terms but in terms of how many hours are needed to work to afford it.

Key Message: Don't delay retirement for too long, you workaholic!

Okay so daily morning coffee $3 x 5 times a week is $15. Let us assume this makes up 80% of your hourly after tax pay per hour. 48 minutes of your life each week is consumed by your need for coffee.

That means your retirement is delayed by 48 minutes EVERY WEEK that you spend $15 on coffee. Over a year that is 2,304 minutes or 38.4 hours of extra work required to afford the morning coffees.

3. Think of money, not just in the present, but in the future value of money.

Key Message: Why work yourself, when your money can do it for you?

When most people think of money, they think in pure dollar terms. This cash can buy me that dress or game on sale.

In economics there is a term called opportunity cost, which measures the real cost of one decision by forgoing the other path.

So that purchase of the $2000 LV bag not only includes the hard earned cash you outlaid but the opportunity cost of having that $2k generate compound interest or other returns for you. The opportunity cost of you not staying back late to do the overtime is the money forgone and management seeing you in a good light as a team player.

All the potential money savings can be used to MAKE MORE MONEY or at least cost you less money. Shares, property, online savings accounts. These can all make money for you if you put aside some money. It sounds silly, but it is so true. Money can make more money.

The $15 a week savings you find, can be compounded, month after month, year after year. $100 in your hand could potentially be worth $300 in 5 years time. Obviously the rate of inflation plays a big part of this, so it is also important to find ways to protect your capital in the event of high inflationary environments. 

Think about this - $500 in my offset account saves me interest this month, but it also saves me money again next month, so and and so forth. The interest on my loan would be compounded by a lot more if I had not put that money there. You don't need me to repeat the power of compounding over a long period of time.

To sum up:

These things, when viewed individually may make a slight difference in your finances and views on money. But if you implement them regularly, and fastidiously, you will end up seeing results.

As your savings build up, use that capital to make even more money.