35 and flat broke – a matter of discipline
With reference to here,
You can read the stories of Tom, Dick and Harry. You think that’s scary. And don’t be surprised if you’re one of them.
Having done a module called Personal Financial Planning, it certainly left a deep impression of the importance of wealth planning and the importance of money.
Firstly, there are 3 ways where you can grow your money. It is shared by the timeless classic “The Richest Man in Babylon”
- spend less
- earn more
- invest more
- guard your money
It sounds very simple to all of us, but it requires a great deal of discipline.
To illustrate: let’s say you’re 35 and started to earn more than previously, what’s easier for you?
A) Keep your expenditures as it is
B) Start to spend a bit more of your added income
It’s too obvious that most of us would likely to fall within category B. We live in a society that it’s hard to forgo immediate gratification for the current and future financial security.
It’s a tempting culture.
One paragraph stated it all too clearly:
Instant gratification is a hallmark of our generation, says Roy Walker, principal consultant at IPP Financial Advisers (Singapore). Unlike our parents and grandparents, who scrimped and saved, we want it all and we want it now.
Isn’t that true? How often would you see someone saving his first pay check? I think treating your family and friends to a meal is fine, but I hear of cases where people spend their first salary on a piece of luxurious Louis Vuitton bag. I am not against owning it, but perhaps, wouldn’t be wiser to purchase it when you’ve built on a sizable amount of savings and investments? What’s the hurry? Take a step back, and ask yourself, do I really need it?
Am I buying it for myself or to impress others?
Coming to my next point, when you are drawing a pay check, it is most likely you’re eligible for credit cards. Credit cards is basically a loan facility whereby the banks allow you to borrow future money against your purchases. It’d say it provides flexibility and convenience. Possibly, impulse purchases as well. However, the catch is, the interest rate is high and it snowballs. If you can’t pay it off, it becomes debt. The longer you delay payment, the bigger hole the debt is. And in extreme cases, the money you pay would be used to pay off the interests rather than the actual sum of money you owed in the first place.
According to Investopedia, the saving ratio is the amount of money, expressed as a percentage or ratio, that one deducts from his/her disposable personal income to set aside as a nest egg or for retirement. The cash accumulated is typically put into very low-risk investments
Financial advisors recommended a saving ratio of between 10% to 20% of your take home pay. It, however, depends on your age as well. When you’re older and accumulated assets for yourself, you can afford to save lesser. We should look our savings as a ratio and not a fixated sum of money. It is easy to cheat ourselves by stating we’re saving the same amount of money.
To illustrate:
With more savings, you’re able to look into ways of how you could grow your passive incomes through investments in mutual funds, index funds, stocks, etc. Furthermore, you would able to use the power of compounding to your advantage.
So, I believe our life is a sum of our decisions.
All in all, it’s a choice between:
- Suffer now, enjoy more later
- Enjoy now, suffer more later.
Cheers.