Mike Beal Blog Post Saving and Budgeting tips - Mike Beal Financial Planning

Your Income

After being a financial planner on the Sunshine Coast for many years it has become obvious that it does not matter what your income is, it’s what you do with your income that counts. I’ve seen couples with extraordinarily high income, couples earning over $400,000 p.a. who still, quite easily, spend more than they earn.  This is human nature – as your earnings increase do you fly economy or business?  However, when I look to many of my wealthier clients they are often quite frugal, flying economy rather than business, maintaining their older second-hand car, not going to the flashiest restaurants, here are my Saving and Budgeting tips.

How to Save Money

Spend less than you earn. Sound like a simple concept? It is! But saving is so hard! There are so many enticing advertisements for the latest consumer goods.  Resist! And do a budget. Foregoing present consumption means you will have much more in the future. The world’s greatest investor, Warren Buffett, the world’s third wealthiest man, decided against buying his baby a cot when Warren was in his twenties, deciding instead to make one himself out of a drawer and blankets. Buffett, who has averaged 24% per annum in his investing career reasoned that the $100 to purchase a cot would be worth thousands of dollars in the future due to the power of compound interest. Now that example is a little extreme of course but you get the idea of how powerful compound interest can be.

Mike’s Top Ten Saving Tips:

  1. Be frugal.This is the number one way to make your money go further. Make your own lunches, don’t buy expensive clothes, and never buy new cars, and especially don’t borrow money that you don’t need!
  2. Don’t keep up with the Jones’. ‘Allocating time and money in the pursuit of looking superior often has a predictable outcome: inferior economic achievement’ (The Millionaire Next Door by Thomas Stanley and William Danko). Buy assets. Assets provide an income, liabilities don’t. Read ‘Rich Dad Poor Dad’ by Robert Kiyosaki to find out about the difference between assets and liabilities.
  3. Establish clearly defined written goals. There was a famous survey at Harvard University about written goals. The researchers surveyed found that the graduates with written goals equated to 3% of the graduation year. Twenty years later this same year was surveyed again. The 3% with written goals were not only happier and more satisfied with their lives but the financial numbers also had a remarkable conclusion: the 3% with written goals had achieved more wealth than the 97% added together! So set written goals! If they are not written and read each day there is little point in having them ­ so get writing.
  4. Minimise taxation­ tax is likely to be your largest expense by far. Learn how to minimise it.
  5. Establish your own business. Two thirds of American millionaires are self-employed whilst the general population consists of only 20% self-employed people ­ we expect this is probably fairly similar in Australia as well.
  6. “Whatever you have, spend less.” – Samuel Johnson. According to ‘The Millionaire Next Door’ over half of the millionaires have budgets for monthly expenditure, nearly all of the other half invested a large proportion of their income (a concept known as ‘pay yourself first’) before spending money, hence they had a ‘forced’ budget anyway. Why not do a budget now?  https://www.amp.com.au/personal/tools-and-calculators/budget-planner-calculator. By budgeting and recording how much you spend each DAY, you can quickly realise after a month or so that you’re wasting hundreds of dollars where you needn’t ­
  7. Use your time productively. Don’t waste time watching television, do something a little more productive ­read books about how you can increase your wealth.
  8. Choose employment that you enjoy, this way, if you need to do a few more hours to earn some more money at least you’ll enjoy it!
  9. Never pay interest on credit cards or other ‘bad’ debt. This is compound interest in reverse.
  10. Save via the Superannuation environment. Superannuation in Australia is taxed at a maximum rate of 15% prior to age 60 and nil after age 60 when you’re retired.  Like a giant illegal tax haven…which is totally legal, you’d be mad not to take advantage of superannuation.

Apply these saving and budgeting tips, and watch your wealth grow.