20%.
That's the savings ratio from your income as recommended by experts.
But we can do better.
After watching this video, I challenge you to double that.
At least.
You know what the actual average savings ratio is?
In the UK, it's 5%.
The US? it's 3.5%.
and Australia?
2.5%.
So out of every $100 earned, the average Australian spends $97.50 and saves $2.50.
That's as close to not saving anything as you can get.
Why are we all so terrible at it?
How do we improve how much we save? and finally, as you might have noticed from the title of
the video, why shouldn't we save money?
The reason why you can't save money is because spending is just too easy.
With credit cards letting us spend money that we don't own, the BNPL schemes that makes
everything seem so affordable, online shopping that brings the whole spending experience
into your monitor.
It's no wonder that we as a society have all embraced the consumer culture and our whole
lives revolves around the endless cycle of earning, and spending, and earning, and spending.
Enough is enough, it's time to take control of your spending.
Because you're not spending money, the valueless currency that we all have agreed has value
to exchange for goods and services, you're spending time.
Time = Money.
Think of every purchase as working hours.
Earn $20 dollars an hour?
Those sneakers you just purchased online was equivalent to 6 hours of work.
That camera you bought to take with you on a future holiday cost you 40 hours of work.
Those weekly UberEats orders over the whole year sets you back 100 hours of work.
It's hard to imagine doing 100 hours of anything.
It might reduce to 50 hours if you can earn $40 dollars an hour, but thinking of it as
more than a full weeks worth of pre-tax salary just to cover one meal a week for a year doesn't
seem as appetising as just $30 dollars for the convenience of waiting for your food,
and hopefully it's just enough to encourage you to cook your own food more often.
So what can we do to save our time?
First, budget and track your spending.
There are so many tools and apps out there to help you manage your money so you should
know where absolutely every dollar is going.
The next time you get your paycheck, I want you to immediately save 20% of it.
If you can't do that straight away then make more money, get a side hustle, find a cheaper
place to live.
You know what to do.
Now with the remaining money, set 50% for your basic essentials which includes 5 things:
food, rent or mortgage, utility bills, health and transport.
That's it. and no, new clothes are not an essential, those shirts that you already have
are fine to wear, and you don't have to impress anyone.
Finally, the last 30% is spending money for that new phone because your old one is getting
slow, or a new bag because the old one has a hole in it.
Whatever you don’t spend goes back into the savings fund.
Be angry with yourself if you’ve spent more than half of that 30%.
Second, pay your bills on the due date.
There’s no reward for paying anything early, so put a reminder in your calendar and keep
your money in your savings or offset account and keep the interest flowing right up to
the due date.
Also, check if the biller charges merchant fees for paying with VISA or Mastercard at
the bottom.
If they don’t, then pay it with your credit card and you’ve earned up to another 30
days of interest that you get to keep.
Plus the reward points on top of it.
So let’s say a bill of $1000 lands in the mail, asking for payment in 30 days.
At 2.5% interest nowadays, if you paid on the last day, then the interest on that thousand
dollars that you didn’t pay immediately would have accrued $2 and your bill is now
$998 out of your own pocket.
Pay by credit card and gain $4 dollars in interest.
If that bill is charged quarterly then you save $16 over the year.
For paying your bills on the last day.
And doing nothing else.
Third, delay your impulse buys.
It can be hard to not buy something when it's so easy to get.
If you ever get the itch to buy anything, try to put off buying it until the next day.
When the next day comes, put it off again until the next.
On the next day, put it off until next week.
Delay tactics work extremely well against spontaneous, spur of the moment purchases.
It's possible that you'll realise you actually don’t need it, and never end up buying it,
and that's a win for your bank account.
Fourth, plan and cook your meals.
Food apps like Uber-eats makes money because people are lazy.
Especially after a long exhausting day of work, it’s too easy to whip out that app
than to whip up some eggs, mash the screen than to mash some potatoes, press the order
button than to press some dough.
But if you plan your meals for the week, and go grocery shopping specifically for that
plan, not only will your bank account be looking good, but your health and cooking skills will
also improve.
Not to mention someone who can cook is definitely more desirable, more matter if you’re a
man or a woman.
Finally, loyalty is expensive.
Just because your loyalty card gives you freebies doesn’t mean you should stick with that
company.
The absolute worst offenders are the banks, who regularly shaft loyal customers with terrible
interest rates while offering attractive promotional rates only to new customers.
The other offenders include airlines with their frequent flyer programs, supermarkets
with points per shop, most franchises with a free drink every 10 meals or something.
Don’t fall for it, because those freebies are all accounted for in the price you pay
to get those freebies.
Shop around and look for the best deals, buy in bulk if you can, and refinance to a different
bank every time your loan or account allows you to.
You’ll be saving thousands of dollars every year, no, you’ll be saving hundreds of working
hours every year.
So hopefully by doing all these things, you can boost your savings rates well above the
measly average of 2.5%.
But if you already do all these things and still fall short of the 20% ratio, then it's
time to look at how you can make more.
I know the obvious way to save more money is to earn more, but it's also hard to keep
your lifestyle expenses from rising when you do earn more.
However, by making more money while keeping your expenses the same is the ultimate savings
plan, and will make the biggest difference in your financial journey.
So now that you have a better understanding of steps to saving money, let me share with
you the story of Ronald Read.
Born into poverty, his first career move was to enlist in the military police in World
War 2 for an average pay of around $700.
A month.
After discharge, he worked as a gas station attendant for 25 years at an average rate
of $10 an hour.
The final job he held for 17 years was a janitor for a department store where he would have
been paid $15 an hour.
When he passed away in 2014, he left behind a fortune of almost 8 million dollars.
So how did he do it?
Remember that Time = Money?
Well, that's a lie, because Time is greater than money.
The truth is that the value of money that you’ve worked so hard to save WILL stagnate
over time, and that’s all due to inflation.
The only way to defend against time is to invest.
Group your money into categories of investments like Stocks, Bonds, Property.
Think of your money as your employees who are working to make you more money.
If any of those employees are underperforming, get rid of them and invest more in the high
performing ones.
Continue to save that 20% or more, and continue to invest in your money employees.
Create more income sources so that you can invest more, and make an effort to re-invest
the money that you get in the investment returns.
This is how Ronald Read made his millions even though he made minimum wage all his life.
He was frugal, saved as much as he could and invested most of those savings into dividend
paying stocks, then re-invested all the dividends.
The moral of the story is, don't spend money unnecessarily, don’t save money outside
of an emergency fund, invest everything that you can into what you are most comfortable
with and you too can emulate what Ronald Read was able to do and retire on a multi-million
dollar portfolio that can generate more cash for you while doing nothing than what you
earn in your salary right now for working that 9-5.
So thanks for making it to the end.
I wanted to try a different type of video and I hope that that was both interesting
and informative to watch.
I want to thank everyone that has subscribed to my channel recently and if you haven’t
then hit that subscribe button and the like button for good measure to join me in our
goal of building strong investments and wealth.
Thanks again for watching, and I’ll see you in the next video.