I recently had a conversation with a friend from work who was excited about reaching their next savings goal of $300,000. Obviously, I walked away thinking good on him but also – why don’t I have $300k sitting in the bank too!
We’re a similar age, both grew up in a single parent household and work in the same career field. The logical side of me wanted to work this out, let’s say he worked from 15 years of age and started saving from his first pay cheque, a simple calculation shows he saved an average of $20,000 a year or approximately $55 a day for 15 years, that’s without even taking into account compound interest!
That’s impressive and while not everyone has $55 a day to leave in the bank, it still shows the power of a regular savings habit.
Same, same but different
I started to think that if over the same lifetime we’ve had the same upbringing and earning capacity, what led him to save and me to spend?
So, I did what any self-respecting journalist would do – I stalked him. I quizzed him on his knowledge of finance, the share and property market; watched what he did during his lunch break, asked how he spent his weekends and obviously how he spent his money (was he buying scratchies daily, living on noodles?). What I discovered upon my investigation was that our savings mindset – that is what we were habitually doing and thinking in regards to our money was completely different – compound that difference over 15 years of working and that’s why our bank accounts held very different sums.
How to change your savings mindset
Stop living in the moment
Upon observation of other friends, family and co-workers I noticed that those, like me, that live for today are the ones who are broke tomorrow. Turns out I’m on to something, with an Australian financial literacy report finding that 59% of young people financially “like to live for today”.
With easier access to credit cards, interest free terms and personal loans, which are all targeted at the consumer so we can have it all today even though we can’t afford it. Once you realise that the car still needs paying back (at a higher cost), as does the credit card and that television you brought on interest free terms you’ll begin to resent that every pay cheque is spent on purchases you made years ago. Perhaps there is something to living within your means and not relying on credit to fund a lifestyle.
The true cost of a sale item
But it’s on sale! If you want to get ahead financially and save money you’ll need to think long term – if I buy this sale item, do I actually own it? or am I postponing the cost of the item, spending my future income before I’ve earned it and will I end up paying a lot more for it, due to interest, than it’s actually worth?
As it turns out my work friend withheld the instant gratification of spending money for the long term success of being financially free.
Details from my surveillance were as follows:
- He saved money every pay day
- Never wanted to be in debt and avoided it whenever possible
- Brought his lunch to work every-single-day (and it wasn’t just noodles)
- Spent most weekends at home
- Dabbled in the share market
- Rented a cheap apartment
- Paid cash for his second hand car years ago
While this lifestyle isn’t for everyone, I noticed the benefits; he had no financial stress, no debt and was even able to help his mother buy a house. He now has enough money to purchase a property mortgage free (in certain areas/towns), or earn approximately $9,000 in interest per year from a term deposit before tax and while packing his lunch everyday didn’t put the $300k in his bank account, having a good savings habit and mindset certainly did.
Shift your thoughts to gratitude
Cringing when a bill comes in the mail and cursing the cost of electricity? These responses don’t promote a healthy financial mindset. By changing our thoughts about our everyday expenses and shifting our outlook from that of negativity to gratitude for the money we receive and spend, can help build a better savings mindset. No, I’m not asking you to kiss your bills but perhaps each time you receive a bill, say for electricity, think about why you are paying it – because you want electricity obviously! You want to keep warm in winter, have hot showers and boil a kettle, so be grateful for this bill as it lets you have a cup of coffee – this is what you are paying for – not just a piece of paper some company sends quarterly that you’re using as a drink coaster.
Get financially organized then focus on saving
To help you stay in a savings mindset it pays to be organised and have the stress around money reduced. Set up direct debits from your bank account for your rent/mortgage payments, phone bill, health insurance and any other fortnightly and monthly bills, then let it go. No more logging into your internet banking each pay to watch your money disappear and stressing about overdue notices because you forgot to pay a bill on time. By automating your regular bills you’ll be more organised, saving money on late fees and shifting your attention to your financial goals.
Now as I sit eating a packed lunch with my friend, I know that it’s possible to obtain significant savings without winning the lottery or earning six figures. While I secretly hope his willpower rubs off on me, I know having a healthy savings mindset is all on me – though there’s no harm in picking up a few good tips along the way.