We all know the formula to create wealth: “Spend less than you earn and invest the rest.”
But how do we stay motivated? how can we fight the urge to spend beyond our means?
Here are my solutions:
1. Trigger points.
The main trigger points are social pressure and media manipulation.
Social pressure: Here is a simple example. You work in an office where everyone looks like a magazine model… It is easy to feel the pressure to buy new and expensive clothes to be the same as all the other co workers. There are many more instances where social pressure plays a big role in your spending behavior. The best thing is to be aware that you don’t have to be like everybody else. It is ok to say “no” from time to time. You don’t have to have a big house, you don’t have to own a luxury car, you don’t have to attend your best friend’s wedding in Hawaii. You can be a bit different. You can be known as the person who saves money. Many of us strive to be different, this is your opportunity.
Media Manipulation: Advertisers will tell you to buy their products “Because you deserve it!” How can you argue with that? You work hard, you are under a lot of stress and yes, you feel you deserve that new item. The solution for this is to always be aware that the job of advertisers is to manipulate you, that there are psychologists and sociologists who are getting paid thousands of dollars to influence your buying decisions. They will spin a story to play with your emotions, to make you desire the lifestyle that their products offer. Question their offers and keep your emotions in check.
I have become immune to social pressure. I practically don’t care about exhibiting social symbols. I ride a bicycle, I live in a modest apartment and I prefer to dress in shorts and sneakers. As for media manipulation. I simply don’t have a T.V. nor a radio nor do I read newspapers.
2. Make savings a ritual.
Have you heard this saying, “Pay yourself first?” You can simply ask your bank to take money out of your checking account and put it in your savings or investment account every month, then you will be a habitual saver. There are two ways of doing this:You can decide to put aside a percentage of your earnings, let’s say 10%; or you can put aside a determined amount, let’s say $1000 per month. The final goal is that you don’t have to think about it, savings will become a habit that you will do unconsciously.
Every month there is an automatic transfer from my checking account to my savings account. I follow my own advice.
3. Visualize the future.
This step is more complicated. You will need a financial calculator or the help of a professional. Try to predict until which age you will live. Let’s say you will live until age 95. Then decide at what age you want to retire. Let’s say at 65. Now you need to figure out how much money you will need to live for 30 years without working. Once you have figured out this amount, then you have to decide how much you need to save every year. This exercise should be done at least once per year.
My personal goal is to have one million dollars by the age of 60. What is your goal?
Many people commit the mistake of thinking (or hoping) that something will happen in the future that will take care of their finances. Well, yes, something might happen, but just as well, something might never happen and then what will you do? Visualize this scenario as well. How would you pay your bills when you are 80 years old and you no longer have the energy to work full or part time?
Saving money and living within your means is mostly a psychological exercise very similar to staying in good shape.
We are all capable of understanding the psychological factors that make us spend. We can learn how to ignore the triggers that make us buy one more item. We can learn how to make savings a habit that we do unconsciously. And we can learn to visualize where do we want to be financially in one year, in five years, and in 20 years from now.
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