The road to wealth creation, which leads to financial independence if persisted with, is no secret. In fact P. T. Barnum in his 1880 publication, The Art of Money Getting
(available for free in Kindle Edition at the link), which is still as relevant today as when it was first published, reveals it by the second paragraph. “Those who really desire to attain an independence, have only to set their minds upon it, and adopt the proper means, as they do in regard to any other object which they wish to accomplish, and the thing is easily done. But however easy it may be found to make money, I have no doubt many of my hearers will agree it is the most difficult thing in the world to keep it. The road to wealth is, as Dr Franklin truly says, “as plain as the road to the mill.” It consists simply in expending less than we earn; that seems to be a very simply problem. Mr Micawber, one of those happy creations of the genial Dickens, puts the case in a strong light when he says that to have an annual income of twenty pounds per annum, and spend twenty ponds and sixpence, is to be the most miserable of men; whereas to have an income of only twenty pounds, and spend but nineteen pounds and sixpence is to be the happiest of mortals.”
If “those who really desire to attain an independence, have only to set their minds upon it” and spend less than we earn I ask how do we find ourselves in a world some 133 years later where every 5 minutes and 7 seconds someone is declared insolvent or bankrupt and the average household debt in the UK (excluding mortgages) is £6,020? Why is it “the most difficult thing in the world to keep it”? While we shouldn't trivialise this as there likely many reasons depending on who you are, which includes some people who through no fault of their own fall on hard times, I also can’t help think of two major reasons which likely prevent the road to wealth from being found for many. The first is that in the modern day a lot of people refuse to take responsibility for their own actions but instead prefer to act like a victim. The second is education.
If nobody shows you where that needle in the haystack is then probability says you won’t find it. The problem is in modern society who has it in their interest to show you where the needle is? Of course the individual does but if they never know they are looking for it then it’s down to luck to stumble across it. Family and friends possibly do but it relies on them having found the needle for themselves. Worse it is actually in the rest of the world’s interest for you not to find the needle. All those advertisements you are bombarded with day and night whether direct or more subtly via the current lazy mainstream media certainly don’t want you to discover it. They want you spending “twenty pounds and sixpence” and not “nineteen pounds and sixpence”.
Let’s therefore make this post a needle in the internet haystack and hope that some find it. If you’re reading this then feel free to Like or Tweet it, as every one of those places another needle in the haystack that might be found. Let’s detail the simple method that helps me save more.
If your budget shows you spending “twenty pounds and sixpence” then you clearly have an emergency on your hands. Every second that passes is seeing you move further into debt which is then making it more difficult to ever get out of it. Mr Money Mustache ‘eloquently’ advises that in this situation the correct response is to treat it like “there is a cloud of killer bees covering every square inch of my body and stinging me constantly!!!! I need to stop it before I am killed!!!” In this situation you need to get yourself to the point of only spending “nineteen pounds and sixpence” quickly.
I would then argue that once you reach the point of only spending “nineteen pounds and sixpence” then you still owe it to yourself to try and get to nineteen pounds and then eighteen pounds and sixpence and then... This is because every penny not spent in a year actually gives you a double whammy of benefit. It is both another penny able to be saved, helping you build the wealth you need for financial independence faster, but also results in you needing a smaller pile of wealth as you have now proven you can live on less.
Importantly, don’t look at your peers, friends or family to help you answer this question. To demonstrate at one point in my life my family owned 2 cars and we thought we needed them. At the time nobody challenged me on this because 2 cars were just ‘normal’ however in reality the only reason we needed them was because of the way our life was structured. By changing that structure I was able to reduce that 2 car family down to a 0 car family. We stayed a 0 car family for 4.5 years and you just wouldn’t believe (your budget should tell you) how many pounds that saved us. In the interests of full disclosure I’m now back to a 1 car family but that’s because I’ve done the maths and have decided I can save harder (increased earnings less tax and car running costs) with a car at this stage in my life.
This is where credit comparison sites, such as Totally Money, can help. In just a few mouse clicks you can find the best value credit cards (cashback if you are already at “nineteen pounds and sixpence” or lowest interest for your situation if you’re at “twenty pounds and sixpence”), mortgages, insurance, bank accounts and energy providers for your chosen level of consumption.
Remember not to just focus on the big ticket savings because small ones like that daily Starbuck’s coffee can also really add up.
As always DYOR
(available for free in Kindle Edition at the link), which is still as relevant today as when it was first published, reveals it by the second paragraph. “Those who really desire to attain an independence, have only to set their minds upon it, and adopt the proper means, as they do in regard to any other object which they wish to accomplish, and the thing is easily done. But however easy it may be found to make money, I have no doubt many of my hearers will agree it is the most difficult thing in the world to keep it. The road to wealth is, as Dr Franklin truly says, “as plain as the road to the mill.” It consists simply in expending less than we earn; that seems to be a very simply problem. Mr Micawber, one of those happy creations of the genial Dickens, puts the case in a strong light when he says that to have an annual income of twenty pounds per annum, and spend twenty ponds and sixpence, is to be the most miserable of men; whereas to have an income of only twenty pounds, and spend but nineteen pounds and sixpence is to be the happiest of mortals.”If “those who really desire to attain an independence, have only to set their minds upon it” and spend less than we earn I ask how do we find ourselves in a world some 133 years later where every 5 minutes and 7 seconds someone is declared insolvent or bankrupt and the average household debt in the UK (excluding mortgages) is £6,020? Why is it “the most difficult thing in the world to keep it”? While we shouldn't trivialise this as there likely many reasons depending on who you are, which includes some people who through no fault of their own fall on hard times, I also can’t help think of two major reasons which likely prevent the road to wealth from being found for many. The first is that in the modern day a lot of people refuse to take responsibility for their own actions but instead prefer to act like a victim. The second is education.
If nobody shows you where that needle in the haystack is then probability says you won’t find it. The problem is in modern society who has it in their interest to show you where the needle is? Of course the individual does but if they never know they are looking for it then it’s down to luck to stumble across it. Family and friends possibly do but it relies on them having found the needle for themselves. Worse it is actually in the rest of the world’s interest for you not to find the needle. All those advertisements you are bombarded with day and night whether direct or more subtly via the current lazy mainstream media certainly don’t want you to discover it. They want you spending “twenty pounds and sixpence” and not “nineteen pounds and sixpence”.
Let’s therefore make this post a needle in the internet haystack and hope that some find it. If you’re reading this then feel free to Like or Tweet it, as every one of those places another needle in the haystack that might be found. Let’s detail the simple method that helps me save more.
Step 1: Prepare a Budget
A budget is no secret and I’m sure 99.9% of the population is already aware of what a budget is. Just about every personal financial site and book talks about them. While well known they unfortunately don’t give you any answers but they do give you information. They won’t help you save more but are a necessary first step as they:- let you take a step back to see what the situation looks like;
- tell you how quickly you need to act; and
- tell where you should focus first.
If your budget shows you spending “twenty pounds and sixpence” then you clearly have an emergency on your hands. Every second that passes is seeing you move further into debt which is then making it more difficult to ever get out of it. Mr Money Mustache ‘eloquently’ advises that in this situation the correct response is to treat it like “there is a cloud of killer bees covering every square inch of my body and stinging me constantly!!!! I need to stop it before I am killed!!!” In this situation you need to get yourself to the point of only spending “nineteen pounds and sixpence” quickly.
I would then argue that once you reach the point of only spending “nineteen pounds and sixpence” then you still owe it to yourself to try and get to nineteen pounds and then eighteen pounds and sixpence and then... This is because every penny not spent in a year actually gives you a double whammy of benefit. It is both another penny able to be saved, helping you build the wealth you need for financial independence faster, but also results in you needing a smaller pile of wealth as you have now proven you can live on less.
Step 2: Before making any purchase ask do I really need to buy this?
Have a look around you. Do you use or more importantly need all of that stuff? Do you really need that iPhone, iPad and PC? Do you need all of those books or could you have borrowed some of them from that old fashioned place called a library? Do you have a shirt or dress that you have only ever worn once? Could you have done without it? Can I repair or convert what I already have?Importantly, don’t look at your peers, friends or family to help you answer this question. To demonstrate at one point in my life my family owned 2 cars and we thought we needed them. At the time nobody challenged me on this because 2 cars were just ‘normal’ however in reality the only reason we needed them was because of the way our life was structured. By changing that structure I was able to reduce that 2 car family down to a 0 car family. We stayed a 0 car family for 4.5 years and you just wouldn’t believe (your budget should tell you) how many pounds that saved us. In the interests of full disclosure I’m now back to a 1 car family but that’s because I’ve done the maths and have decided I can save harder (increased earnings less tax and car running costs) with a car at this stage in my life.
Step 3: If you decide to proceed with the purchase ask can I buy less of it?
Do you throw food out that hasn’t been eaten but instead has gone bad? Do you leave lights on when you’re not in the room? Do you walk around indoors in winter in a t-shirt with the heating turned up? Do you have a bigger house than you need and heat all of it? Through consciously thinking about energy use last year my family was able to use the heating for only about 4 hours in total. Compare the potential savings of that to those that who already have the heating on today.Step 4: Once you’re buying the least ask is this purchase giving me the best value for money?
Here it’s important to reinforce we are talking value for money and not lowest cost. If you have a brand of shoe which you know will last you 3 years compared to the cheapest brand which will only last you 1 year then it’s false economy to buy the cheapest.This is where credit comparison sites, such as Totally Money, can help. In just a few mouse clicks you can find the best value credit cards (cashback if you are already at “nineteen pounds and sixpence” or lowest interest for your situation if you’re at “twenty pounds and sixpence”), mortgages, insurance, bank accounts and energy providers for your chosen level of consumption.
Remember not to just focus on the big ticket savings because small ones like that daily Starbuck’s coffee can also really add up.
As always DYOR
Another incentive to rein in spending is to look at your personal possessions, recall what you paid for them, and consider the few pennies they would fetch at a car boot sale. . . . The difference is the amount you were a sucker to be exploited, less the real use you've had out of them.
ReplyDeleteReally questioning yourself over whether your "need" to spend money on something every time is a great technique. Having to justify something as a "want" (which will just be replaced by a different want in a week's time) is pretty hard to do!
ReplyDeleteCan I add...NEVER, NEVER, NEVER pay full price for something!...How do you go about doing this?
ReplyDelete1. Buy in bulk (for things that have a long shelf life).
2. Buy when something is on offer (that you need, NOT as it looks like a bargain!)....this sometime means thinking ahead.
3. Negotiate price...I find it amazing that those from Developed countries feel 'ashamed' to do this but anyone from a Developing country would think that you were a fool if you didnt...there is no such thing as a fixed price!
4. Buy secondhand and/or sell your items when you replace them with something new