16. SIX GOOD MONEY SAVING HABITS THAT HELP YOU SAVE MORE AND SPEND LESS
“Beware of little expenses; a small leak will sink a great ship." -- Benjamin Franklin
After spending the last 27 years in corporate world and 3 years in early retirement, I still hold strongly to my belief in money saving and frugal living. I’d learned about how difficult it’s to earn money, and how easy to spend it. I have made some mistakes spending my money unwisely. It’s part of growing pain. But overall, I pretty much try my best to practise six money saving habits that I’m going to share with you below.
1. Practise minimalist living: less is more
I'm sure you have read about "less is more." Many books are available in bookstores about minimalism, minimalist living or simple living. What is it then?
‘Less is more’ is all about simplifying one's life. And practising minimalist living is all about practising to live with less. For many minimalists, the philosophy is about getting rid of excess stuff and living life based on experiences rather than worldly possessions. Having less stuff can definitely free up your life financially and help you save a lot of money.
You know who Mark Zuckerberg is. But do you know that this billionaire Facebook founder and CEO has a pretty monochromatic wardrobe? He only has grey t-shirts and hoodies in bulk and he wears them every day. In his own words, Mark said, "I really want to clear my life to make it so that I have to make as few decisions as possible about anything except how to best serve this community."
Imagine - a wardrobe with no other colour t-shirts except grey. Even though his purpose is not to save money but to make as few decisions as possible about anything except how to best serve the community, but indirectly, he is saving a lot of money from this habit. Don't you think?
I would say that at least for this aspect of his life, he is practising minimalist living: less is more. Go check your wardrobe now: I'm sure most of you have more t-shirts in various colours than Mark. And you have your office wears too. For ladies, you may have even more - dresses, gowns, etc.
Owning and buying many material things don't give you lasting happiness. An oversized house, a few cars parked in the car garage, and a built-in wardrobe filled with branded clothes and shoes may not make you forever happy.
But it definitely will prolong the years of you being in debt, especially if you take up a loan to have all those material things. And it definitely will prolong your dream to achieve financial independence with an option to retire early, especially if you spend like there's no tomorrow. If you have no savings, and most probably live with debt, how can you ever have an early retirement?
Therefore, practise minimalist living where less is more as early as possible in your life. This habit will definitely help you save more and achieve your saving rate - the secret to your financial independence – more effortlessly. Remember: Every dollar saved counts. In all things. At all times.
2. Know your desired saving rate
I know this is covered on the theory part earlier using Mr Money Moustache's modified saving rate's table. But I would like to stress again that you shall know exactly what your desired saving rate is. If you don't have this stuck in your head, I'm afraid it might become very challenging for you to achieve your financial independence.
The higher the saving rate over your total take-home pay, the more you need to save. And the more you save, the faster you can have the option to retire early. If you can, target a saving rate of at least 30 - 35% of your total take-home pay, not taking into account of your EPF contribution.
For example, your total take-home pay is RM8,000 a month. You want to achieve a saving rate of 35% so that you can retire by 50. It means that you can only spend RM5,200 (65%) each month, or RM62,400 in a year. You have a limit of RM5,200 a month to spend. You are not allowed to spend over the limit.
If you can consistently do this over the years, you can then comfortably opt for early retirement around age 50.
3. Cultivate daily spending tracking habit on your personal finance
At the end of each financial year, all companies will do budget preparations for the new financial year without fail. They need to do a forecast of how much the organisation will make in terms of sales revenue. They also need to plan probably on how much they can spend on overhead expenditures, investments on equipment, hiring of new employees, marketing expenses, entertainment expenses, etc. Then from the revenue that they make subtracting all the expenses, they will then know grossly how much profit they will make. If they want to make more profit, they only have two ways: to make more sales, or to reduce costs and expenses, or to implement both.
Similarly, you should treat yourself like a company. You should also prepare a yearly budget planning. You should have proper money management on your personal finance. You should know how much you can spend with your desired saving rate.
Now that you know how much you can spend monthly, you need to track all your spending expenses daily so that you know where your money goes. Your chances of sticking to a budget and therefore saving money are higher through daily expense tracking.
My recommendation is for you to use your previous year's total take-home pay to determine how much you can spend current year so that you can treat any salary increment from your job in the new financial year as bonus - extra saving. By doing so, you also learn to continue to live with your current living standard without increasing it just because your salary has increased. It helps in your minimalist living practice too.
How do you track your daily expenses? Don't complicate your life. Just download one of the free mobile apps on daily expense tracking. The spending tracker mobile app of your choice shall be user-friendly, especially on the entry point, so that you can effortlessly key in your daily expenses on the spot immediately after your spending.
What I do is whenever I make a payment at a cash counter, I will then open my app and key in. Once you form such habit, you can assess further which your big ticket items are and where you should cut your expenses further if necessary. It also ensures that you are right on target to achieve your long-term financial independence goal by not over spending beyond your saving rate.
How about your income tracking? Your income is quite easy to track in the expense tracking mobile app. In a month there aren't many items since you are working in a nine-to-five job. You may have primary and secondary income, but overall, your monthly income transactions won’t be much.
4. Exercise self-control & delayed gratification
Should you go for the most expensive iPhone, Samsung or Huawei's latest model? Or should you just choose a practical, functional phone instead? Should you hold on to your existing phone model for 1 to 2 more years or should you change to a new mobile phone every year?
How about traveling? Do you visit the expensive cities and countries in all of your travel destinations? Or do you reduce your travel frequency or replace some expensive tourist destinations with some more economical local travels instead?
And please say no to compulsive buying! The next time you walk past the latest model of sports shoe or handbag, or see the trendiest outfit that will make you look gorgeous and glamorous, please don't take out your credit card to swipe immediately.
When there is a mega sale, try not to convince yourself to buy more because you will save more. You may end up buying things that you don't need or things that you end up keeping for a long time.
I'm a marathon runner. My favourite running shoes are Nike, Saucony and Skechers. I am crazy about the latest technology used in newly launched shoe models, especially if the shoes are lighter and can make me run more efficiently and faster. I'm so tempted to buy the latest models whenever new models are launched.
However, I've managed to exercise self-control all these years. I wait patiently for the new model to be launched. Instead of buying the newly launched model, I will buy the older / previous model at a discounted price during stock clearance sale instead. I usually save at least 20-30 percent, sometimes up to 50% from the normal price. My principle for buying running shoe: no sale, no purchase. Additionally, unlike some other seasoned runners who have four or five pairs of running shoes so that they can wear them alternately, I only have two pairs: one for training and another for full marathon races.
In all things, exercise some self-control and delayed gratification in your daily life so that you don't overspend or put everything under your credit card.
A Chinese proverb “bitter first, sweet later” aptly describes what delayed gratification should feel like. Remember: delayed gratification through some form of self-control may not make you the happiest person for that particular temporary moment, but it sure does make you the happiest person in years to come that's lasting. Just think of what you can do with your time and financial freedom once you achieve your early retirement years later. I hope that puts a big sweet happy smile on your face!
5. Don't give in to social pressure
In today's world where lifestyle, money, power and status mean a great deal to lots of people, it's easy for you to succumb to social pressure and end up buying many things you don't need or financially you are not capable of. You may then end up living on credit - spending money that you don't have.
Money is hard to earn nowadays. It's so dangerous to live your life on credit or spend more than you should. You will regret one day if you spend money that you don't have, or spend more than you earn.
Your neighbour is driving a BMW. Your colleague is carrying a Gucci handbag wearing a trendy dress by Versace. Your relative is taking a luxury cruise to Alaska. Your best friend travels to exotic countries staying in five-star resorts eating at fancy restaurants. Do you follow suit?
Don't be pressurised by your peers on how you should live your life. Driving a Perodua or Toyota doesn't make you a lesser human being. Traveling on shoestring budget, staying at budget hotels and eating local street food doesn't make your travel any less fun. Wearing a simple t-shirt with no brand name doesn't make you a no-class person.
My neighbour on my left has two BMWs and one Mercedes Benz. My neighbour on my right has a BMW. They are nice, friendly and humble neighbours. We get along with them very well.
We stay smacked in between with a Langkawi-duty-free Nissan Bluebird for 15 years, followed by a Toyota Altis for 14 years, and now an economical model Toyota Vios which I will drive for the next 10-15 years.
My mom used to compare my neighbours' cars to the car I drive. She somehow felt inferior when comparing to the richness of our neighbours. I would then calmly say to her, "Mom! Not that I can't afford a new, expensive car, it's just that I feel there is no need to buy an buy a new and expensive car every five years. To me, car is just a means of transportation to bring me from point A to point B, especially from home to office. That's all! "
Then I continued, "Mom! Try not to compare with neighbours! They are entitled to any fancy cars they want to drive. It's their lifestyle. And we shouldn't compare. And you know that if I want to buy, I can afford too. But I prefer not to. So, let's be grateful with what we have. Give thanks that at least we have a car. Some families out there need to ride on motorbikes to work. And some others don’t even have own transport."
Honestly speaking, I personally felt inferior. But I refuse to give in to social pressure. Slowly, I’ve learned to live the life I want, without having to abide to what society expects of me.
Similarly, whenever I travel, I like to stay in budget hotel and not some 5-star hotel resorts. Can I afford to stay in 5-star hotels? Yes, I can afford. And if I want, I can too. But is it worth it in my book? Definitely not, unless the 5-star resorts offer special discounted prices. Whenever I visit a place, I'm out of my room whole day, leaving my hotel room latest by 8.00 am and back to hotel room earliest by 9.00 pm. Why should I pay the exorbitant price with all the nice facilities that I don't have time to enjoy?
Of course, some of you love to stay in nice hotel resorts, dip yourself in the beautiful swimming pool, have cocktail by the pool side, eat the delicious buffet breakfast and dinner, go for the hotel-class massage service, etc. But that's not the lifestyle that I like to live. I prefer simplicity in life.
I do have friends who have invited me to travel with them. But after realising their luxury travel lifestyle, I have decided to travel alone or with some other friends who enjoy the same simple travel lifestyle as mine. I refused to give in to social pressure.
By being comfortable with myself and minimalist lifestyle, I’m not pressurized by friends, colleagues, relatives, neighbours around me. This has allowed me to save more money for my financial freedom.
By the way, if you are worried that you may be losing some friends because you don’t join them, fret not. Your true friends will stick to you and respect you for your lifestyle. They shall be able to treasure you for who you are - especially the inner beauty of you.
As for those who desert you, let it be. Don't give in to social pressure. Otherwise, you may be happy for a moment, but over the long run, you will suffer financially.
6. Live a debt-free life as soon as you can
Please don't follow what the financial institutions tell you. They try to push their credit card, car loan and housing loan to you. They try to tell you that it's perfectly okay to take a loan for almost any item that you want to buy. They encourage you to buy. They encourage you to spend. Not enough money? They encourage you to borrow. They can lend to you first! You can pay them later. No problem at all!
No problem at all? Of course there is no problem to the financial institutions. They are making money out of you through loan interest - be it credit card, car loan, housing loan, study loan or any loan.
But it's a big problem to you. The moment you put your name on the dotted line signing the loan agreement, you will be in debt for the next 7 to 30 years.
Let's take credit card as a simple example. Many millennials and working adults don't like to pay their monthly credit card bills in full when they receive their monthly credit card statement. They would rather pay just the required minimum amount, and continue to owe credit card company the outstanding balance.
But have you heard of snowball effect? Yes! I can guarantee you that if your mindset is to always just pay the minimum monthly credit card bills, this habit will continue to form in you. You will keep doing it over and over again, month after month. The outstanding balance amount with your credit card company will snowball from a few hundred Ringgit to even few thousand Ringgit one day.
A good friend used to live a lavish lifestyle when she was being a great success at her career at a young age. She once owed credit card company more than RM 100,000. But it'd come to a stage that she was mentally and physically stressed. She fell into depression and anxiety not knowing how to settle all the credit card debts.
It took her close to 10 years to slowly fully settle her credit card outstanding payments. After that hard lesson, she now lives a simple lifestyle, buys only the essentials, and not overspends.
By the way, do you know how much credit card company is going to charge you for the outstanding balance that you don't pay off? The bank that I'm having my credit card is charging a whopping 18% interest rate per year! Can you imagine - 18% per year interest rate! That means if your outstanding balance is RM10,000, you will end up paying RM11,800 a year later! That's a horrible additional RM1,800 to pay! Do you want to give your hard-earned money to your credit card company? Definitely not me! I hope you don't too!
Therefore, please break your bad money habit of paying only the minimum overdue amount for your monthly credit card bills. Force yourself to settle all your past outstanding balance, if any, as soon as possible by paying more to settle them off quickly. Once you have settled all the past outstanding amount, you shall then practise to pay your monthly credit card in full every month. This takes practice and perseverance. But I assure you - it's worth it!
It's even more so for car loan or housing loan which are much larger in loan amounts and longer loan period. We know that monthly payment for car loan can be around one thousand Malaysian Ringgit. As for housing loan, the monthly payment can be a few thousand Malaysian Ringgit. A person usually takes a car loan with repayment period of 5 to 7 years. For housing loan, the repayment period can run up to 30 years. Can you imagine owing bank institution for 30 years?
Don't live on credit, or debt assuming that they will settle by itself one day. Don't think that perhaps one day you wake up, and all your outstanding amount on your credit cards or all your car loan and housing loan will all be miraculously fully settled. You need to pay fully for them with charged interests to own them years later.
Take loan only if it's a must and it's your last resort, not as your first priority. And you have a loan, try to settle your loans soonest. You know that the car that you drive, the house that you live in or rent out are not yours until you fully settle all the outstanding loans with interests. And the longer you let the financial institutions hold on to your physical possessions, the more interest you need to pay.
Unless the interest rates are low and you could save up the difference to earn higher interest somewhere else, Otherwise it's advisable to live a debt-free life as soon as possible. Or at least, you should have enough money to know that if you want, you could settle your loans.
In order to be debt-free, you need to set a specific financial freedom goal. Don't just live by day hoping that debt-free day will come without any proper financial planning. It may come. It may not. Or it may come at a much later date costing you more interests. It will adversely affect your early retirement plan.
I have shared earlier about S.M.A.R.T.s. It stands for specific, measurable, achievable, relevant, time-bound, stretch. Set a S.M.A.R.T.s. debt-free goal for yourself. It gives you a purpose and reason for your financial planning. Instead of settling your housing loan in 30 years, why not stretch yourself to settle earlier – say in 20 or 25 years ?
How to do that? You can choose to dump any extra amount into your housing loan account as and when you have extra cash - be it from your annual performance bonus or extra savings. This also means that you need to fork out more money each month to settle your loans.
Personally, I have been using the S.M.A.R.T.s. goal in terms of savings and loan settlement. I took the loan for the longest period I could (i.e. 25 years or 30 years), but I never wanted to wait until 25 or 30 years later to fully settle my loan. I wanted to be debt-free soonest. Hence, I gave myself a stretched target using S.M.A.R.T.s goal. I used the loans as a motivation to push myself to save even more. I saved vigorously to make sure that I could pay off my housing loan within 10 years of any loan I took instead of the usual 20 years or more.
Living in debt is stressful. It gives you nightmares! I have woken up in the middle of the night sweating. Give yourself more peace of mind by living a debt-free life soonest.
SECTION 3
SAVINGS THROUGH FRUGAL LIVING
“Living a frugal lifestyle gives you the opportunity to invest more money towards your future.” -- John Rampton
F I L L
Financial Independence, Live Life
achieving financial independence from 9-to-5 job before 50
