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Have you noticed many of us tend to behave in extremes?
With finances, there is the YOLO crowd that won’t put any money aside and go into debt for expensive and often showy consumer purchasers. They are living life for today, but often don’t think about what they actually value. They risk trapping themselves working lots of hours, with little flexibility for choice when they really want to make a different choice.
On discovering FIRE (Financial independence retire early), many go to extreme lengths saving 70% of their income. These super savers are often highly motivated by an unhappy work environment. In attempting to escape the situation, they take on lots of overtime, as well as a side hustle whilst practicing extreme frugality. The risk is compounding misery and missing out on all the good stuff in between.
Grant Sabatier is probably the most famous of extreme savers who later regretted going to such extremes. His health suffered and his relationships were neglected.
When we finally reach a huge goal we’ve been working towards for a while there is a risk of “Arrival fallacy”. Our brains tend to fantasise that all of life’s problems will melt away just soon as we…. Lose 10 pounds, Get a promotion, reach financial independence….
Only after reaching these goals do we tend to stop, reflect and realise that life is the journey experienced between goals. It’s good to be striving for something, just don’t sacrifice everything else to get there.
I decided at 16 years of age to try to become a doctor (and a good one too). From that moment I worked towards each goal in my way. At 24 I graduated medical school, but that was just the beginning. After nine years of postgraduate training, I passed the final exams to my specialist qualification. I had reached the end of my plan.
I had fantasised about how good this would feel for months, even years. But especially during the hard grind of study over the prior year. It took just 20 minutes waiting alone post exam for a friend for it to hit me. That pesky feeling of anti-climax.
Luckily there was plenty of fun to be had in the days post-exam, and then my first “boss job” to settle into. But I admit I missed having an incredible goal to work towards. Once in my comfort zone at work, I wasn’t striving for anything, and without that, I felt a little lost.
I have found more, smaller goals since then. Parenting, sports, investing, taking up a musical instrument and starting this blog have kept my mind busy. I’m far more aware now that I need to be working towards something to feel happy, appropriately challenged and happy.
Is Saving Money Worth It?
Does anyone really want to be financially forced to work unless they love it until 67 years?
Does anyone think a health forced retirement before you have enough wealth accumulated to enjoy an acceptable lifestyle sound appealing?
What about not being able to take time off because you can’t afford it if someone you love really needs you?
Of course not! These situations all sound like they suck!
The reasons people don’t sort out their finances (and save) include:
- They don’t think about the what if’s, and would rather bury their head in the sand and deny the possibility of the above happening
- We have all been brainwashed by consumerist marketing. The worst affected think life isnt worth living if you cant buy every latest consumer product
- They feel despondent, it feels impossible to save money for retirement or other goals. 🙁
Saving money offers increasing degrees of freedom of choice in our lives. The impact is significant as soon as we move beyond spending every bit of our pay each month. Small incremental improvements make a massive difference to your choices and sense of freedom over time.
- The ability to pay for a small unexpected expense without stress (car break down)
- No longer needing to waste money on high interest rates credit cards (designed to drown you in debt)
- The ability to save more money by buying in bulk, paying in advance for discounts etc
- Can buy better quality gear that ends up less expensive over the long run
- Can take extra (unpaid or half pay) time off work in an employee
- Have some flexibility with requirement for income for self-employed (so can reward themselves with a real break!)
- Can choose to cut hours at work if it suits
- Changing jobs to a more enjoyable post can occur without financial stress over small changes in pay
- Can consider a mid-life career change
- Can retire early if work becomes a drag
What are Money Saving Tips?
If you are new to the site, and the financial independence movement, it’s easy to wonder where to start. If you work through this list and take action where you can, you’ll likely be amazed at how much financial progress you make over the next 5 years. .
- Buying less house and car than you can afford are probably the most impactful financial decisions you can make. Avoiding brand new houses, units or cars seems to generally a great financial move.
- Focusing on becoming excellent in your career can pay far more than any of these other items. Save 50% of the pay increases.
- Minimise “structural expenses”. These are commitments to regular expenses, such as a cleaner or car payment. They are a far bigger deal than the one-off purchases you make. You can absolutely take these on if they truly add a lot of value to your life. Just think very carefully before you add more structural expenses to your budget.
- Start automating saving money into an emergency fund before doing the same with investments. Commit to a small amount each pay and increase it with each pay rise. This is the most painless way to save and does add up quickly, even with small pay rises. I just increased my Pearler* automated investment by $30 a fortnight after reducing an expense. It may seem so tiny, but if you do it every time it soon becomes significant.
- If you need to grow an emergency fund quickly (or want to start investing faster), consider selling some of your unused stuff. You will get a lot less than you paid for it but most of us probably have a few hundred dollars worth of “stuff” lying around.
- Allocate time to go through your spending at least twice per year. Analyse each line item. Is there anything you are not getting value? An accidental amazon prime subscription? A magazine subscription you don’t read often?
- Review your mortgage interest rates or rent every 2-3 years. Make sure you’re getting a decent deal.
Can Saving Money be Addictive?
It’s easy to get into a habit of checking your bank or investment account multiple times a day. Money can start to take over. People can be seduced by the “All or nothing” mentality.
The worst are probably converted consumers, rather like ex-smokers! Saving money can become like a religion.
Dangers in going overboard with saving money is:
- Missing out on highly valuable experiences in your quest for a high savings rate
- Sacrificing important relationships as you have no other interests, and refuse to socialise (and spend money)
- The arrival fallacy. It would be so sad to arrive at financial independence and realise it’s not all that you thought it would be. Without hobbies or relationships you have a lot of time to fill!
- There is always the risk of illness or death far younger than expected. Unfortunately I see it all the time at work. It is a painful reminder that nothing is guaranteed and your time should never be taken for granted
- Huge “Fuck it” moments. After a months, or years of delayed gratification it’s easy to start feeling disgruntled if you don’t see a lot of progress. When everyone around you seems to be living a higher quality of life, and your sensible investing is moving too slow, it’s more likely you will blow your investments on a purchase you will regret.
How to Stop Obsessing Over Saving Money
You don’t want to be thinking about money all the time. There is a lot more to life you don’t want to be missing out on. If it’s started to become a habit:
- Automate your savings and investments. You have heard of paying yourself first. Take the amount you are putting towards savings and investments out of your account as soon as you’re paid. Automating this will help you gradually stop paying so much attention to it. As your investments grow, the increase each time will seem less significant, it gets a little boring. Over time you should gradually stop checking your account so often.
- Practice Mindfulness. We are always trying to multi-task everything. Try and be completely present during non-money activities that you value. If you are watching a movie cuddled on the couch with your partner, remove phones and enjoy the time fully.
- Get a hobby! You do need to spend a bit of time learning the basics of how to invest, but index fund ETF investing is really simple and evidence based to outperform far more complex methods. Unless this really interests you, it’s then time to find a new hobby. Get obsessed about becoming mastering a new skill or fitness activity.
- Have a fun money account. This is money you get to spend on anything you like. It will help you spend a little regularly on things that you value without guilt. If you find yourself hoarding this money, actively seek a way to put it to use in a way that will provide maximum joy.
- It is actually quite useful to cut expenses until it hurts. Most people assume they can’t cut expenses (eg gym membership). It’s worth cutting ruthlessly to work out what you really miss. When you notice you have gone a little too far, restart the spending that provides good value.
- If trying to increase income, ensure it never causes you harm. Moonlighting may be frowned upon by your employer, and may damage future career prospects. Taking on overtime when you need to be studying is obviously not wise, and working overtime in a job you don’t enjoy isn’t worth it unless very short-term, saving for a specific goal. Consider very carefully the consequences of side hustles and extra work, make sure you confirm with your employer taking on extra work is ok. Ideally extra work should provide more benefits than just money. You should enjoy the extra work, and perhaps learn skills that you are keen to pick up.
Saving Money & Maintaining Balance
Many of us spend some years with our heads in the sand about our finances. Working out financial and life goals, and developing a financial plan are challenging. We need to simultaneously invest as if we will live to 90+ whilst also living every year to the full to avoid regrets. It’s easy to become a little obsessed with saving money. This can provide motivation to get over inertia and start making progress. But the road to financial independence is long and windy. Automate everything you can and make sure you focus on the ups, downs, twists and turns along the way. The journey is the best bit.
Aussie Doc Freedom is not a financial adviser and does not offer any advice. Information on this website is purely a description of my experiences and learning. Please check with your independent financial adviser or accountant before making any changes.