You’re being forced to stay at home. You’re bored and looking for something to do. Everyone seems to be having lots of sales so why not get that widget thing you’ve wanted for a while now that it’s on special?
You’ve even been saving a huge amount too! Now that you’re working from home you haven’t had to pay for petrol or public transport tickets to get into work. You also haven’t been buying lunch or coffees while you’re at work either saving you even more!
There’s lots of good reasons to be tempted to spend your money so today I’d like to interject. Not spending money is good even during COVID-19, so let’s get into why that is.
Spending Decreases Your Savings Power
Buying things is easy. It’s a businesses job to intentionally make it that way to extract as much money from you as possible, but it’s still your choice. So while you still have that choice you should exercise it to keep your savings power as high as possible.
Too often people are focused on what “others make”. How much do you get paid? Is that base or package income? What do I get after tax? What they fail to realise though is that it’s not about how much you earn, it’s about how much you keep!
I could make $1,000,000 a year!…. but if I spend it all every year I’m no better off long term than a homeless person. So while your income is still important, you should never loose focus of your savings power either. Ideally you want to see both of them constantly increasing as much as possible which tends to require continuous work.
Whether you’re saving up for your first home deposit, smashing it all into killing off that mortgage or saving for retirement having a huge amount of savings power is like having a super power in real life.
A huge percentage of people don’t have even $1,000 saved up for emergencies. If you’re saving $1,000 every week though it’ll easily solve this problem along with dozens of others.
Saving More Crushes Your Expenses
If you’re earning a fixed amount of income like most and increasing your savings amount – hopefully aiming for that 70% rate after tax – then it follows that your expenses will go down.
While this might sound like a silly point to make as of course they will, having lower expenses also makes you far more resilient if and when bad times occur. This is two fold.
First off, your savings will go further with lower expenses. If you have $20,000 saved up and your expenses are $2,000/month then great, you’re good for 10 months. If your expenses were $3,000/month though then you’d only last 6.7 months.
Secondly lowering your expenses makes you less impacted if bad times hit. This is because you’re way of life likely won’t have to change as much. If most of your expenses are “needs” not “wants”, then you’ve probably already cut everything to the bone.
So if you’re all of a sudden out of work and have to reduce your expenses to make your savings last as long as possible your quality of life probably won’t change that much. If however you’re always going out to dinner, partying, getting your nails done and buying new clothes weekly then you’re probably going to have to change quite a bit, quite quickly which can lead to a much harsher transition, especially if you just got fired!
What To Do Instead
As you’re stuck at home more often how about you use this time to go over your expenses in a bit of detail instead? All it takes is logging onto your bank and downloading the last 2-3 months of transactions and then going through them. I’d probably recommend doing it for the Oct-Dec 2019 period though as these past few months probably won’t give an accurate representation of your normal expenses!
We’ve covered how to shred expenses a number of times already too so you can get some good tips on it here:
- Huge 5 Part Series Guide To Cutting Expenses
- Shred Your Expenses While Having More Fun
- Mutilating Your Biggest Expense: The Car
- Your Life Should Be A Business
- The Next Step After Cutting Expenses
As said, increasing you Savings Powers is an always ongoing effort you should be doing, just like increasing your Income. Aim to always be working towards doing both simultaneously and you’ll get some amazing results over time.
The benefits include: 1) How to pay off your mortgage faster than 99% of people with one hour a month of work 2) How to get rid of your debt and have the freedom to spend money on the things you love, guilt free 3) Clear outline of how to setup your expenses, mortgage and general finance 4) How offset accounts work and how to get the same result without being gouged by the big banks 5) How to cut through the crap and focus on the things that truly matter when taking down a mortgage 6) How to adjust the strategy so it works for you, even if you have kids, even if you only have one income 7) How to do all of these things and maintain a normal social life (and never be cheap).