I have tried many ways to save money in my life. For example, locking some savings and investing in shares or buying crypo. The problem is that when emergencies arise, all the “savings” disappear. I use the term “emergency” broadly. I really can make anything into an emergency with enough self-convincing. THIS IS THE PROBLEM- It’s just too easy to sell your crypto, or shares, or unlock your savings for a small penalty because “I need the money”
For example, I bought a new golf club. I took my girlfriend out on a date. Fill in the blank______
The problem is that it’s very easy to turn a want into a need. It is easy to justify a want into becoming a need just with a thought or situation. I wanted a new putter because my putting has been going badly for a few months. In my mind, a new putter is now a must because putting badly means poorer scoring, less chance of winning games. A bad golf score may reflect poorly on new potential clients for my business. THE LIST IS ENDLESS – The mind is powerful and will give me endless reasons to solve for the things “I think I need” – The Justification Problem
There are many strategies out there for building wealth. The one I have settled on is the 70/20/10 rule – I will call it the Wise Modern Works approach. Wise – Investments 10% of income; Modern – Savings 20% of income; Works – Everyday living 70% of income THIS IS ONLY THE BEGINNING
I implemented this for a long time but still found myself spending all my investments and savings because I could always justify that a want was actually a need.The reality is that you cannot build wealth if you spend more than you receive
I have since realised that the best strategy will not save me unless I deal with the things that trigger my desire to turn wants into needs. This has been the result of many hours of research and I cannot for a second say that if it weren’t for Dave Ramsey, I would have learned how to deal with this.
Dave has many points on this and I highly recommend you check out his show for your own research. The below are some of the things that have helped me greatly:
- Credit cards are not great, even if you pay them off every month. The most common objection to this is well, “what about my credit score?” – The reality is that your credit score will remain years after you close your credit cards. If you ever need to improve your credit score, a small credit line on a card for a few months can help you get your home loan approved. Thereafter you really don’t need one. A credit card actually makes you spend more money – All the points and discounts on fuel etc…The value of these is not worth undermining the justification problem. In other words I have saved money every month to then close my credit card. If I ever need one for example, to travel overseas, I will get one just for my trip.
- Emergency funds are an absolute necessity! Once my credit card is paid off the next goal is to have an emergency fund of 3 months worth of salary. Once saved any impulse purchases are covered by my emergency fund and the goal thereafter will forever be to replenish my emergency fund to 3 months worth of my salary.
- The Wise Modern Works approach – This comes into play after my emergency fund is built up.
Re-frame your challenges
In closing, the thing I wish for any reader to take away from this is that the way we frame our problems is really what gives them power. To continue with my golf club example…
- Old frame: I want a new golf club but I don’t need one.
- need a new golf club because it will improve my game, bring in new business and make me more money in the long-term
- I buy a new golf club
- New frame: I want a new golf club but I don’t need one.
- I need to get my emergency fund to 3 months because anything could happen. Tomorrow my car wheels may need to be replaced and I cannot afford this if I buy a new golf club today.
- I have told my prospective clients and golfing buddies this is my plan before I get a new putter and they respected it so much that I landed more clients than expected.
- I delayed my purchase by 5 months and bought a new putter today.
It took 5 months but now I have 5 new clients, a new putter, a full emergency fund and this month, for the first time, I have started investing money that is building wealth for my future and the future of my family.
I sincerely hope you find this useful and would love to hear your examples and strategies into building wealth.
More to follow. Peace be your journey and blessings be your way.
Paul-Willem Janse van Rensburg Reply
Very interesting read!