By
Have you ever woken up one day
and said to yourself ‘wow, I really have to get my act together…’. The next day
it’s all green smoothies, two hours at the gym, open the credit card
statements, and of course – calling your mother.
“While we forgot what it meant to build something
slowly and quietly in the background, believe it or not, I think we are starting
to remember again.”
It’s a knee jerk reaction. As
such, you and I both know it won’t last. We over-estimate what we want to
achieve in a week. But in a similar fashion, we can also under-estimate what we
can achieve in a year.
I recently wrote an article on
how a five year plan changed my life. It did quite well off the back of
Linkedin (I’ll never understand Linkedin), but I think I know why. While we
forgot what it meant to build something slowly and quietly in the background,
believe it or not, I think we are starting to remember again.
What was once a long way to the
top if you want to rock and roll was replaced with reality TV singing
competitions. Napster came along in the nineties, the whole music industry went
digital. And as Sanity and the Virgin mega-stores shut down, we called it a day
on hard copy music . But then this happened… ‘Vinyl albums just
outsold digital for the first time ever’
“Money it seems, is returning to its roots also.”
Instant gratification is rather
gratifying, but so is something else. Anticipation. The buildup. The ability to
appreciate what you’re holding in your hands. The process of buying an album
was a part of the journey. Music is more than just listening, it’s experiencing
the whole package.
Money it seems, is returning to
its roots also.
Credit cards are instant cash.
Savings take a little bit of time. But I can guarantee which one feels better
to spend. I can guarantee which one is guilt free spending and which one isn’t.
I can guarantee which one will keep you from reaching all your other goals, and
which one simply plays it’s roll in being a part of your financial life.
“Even if you are disciplined enough to put money
aside in an account – the fact that it is sitting there and you aren’t spending
it is a mental drain.”
So how do you build up a treasure
trove of cash?
Well with my work around
understanding decision fatigue in regards to money, savings make for a strange
situation. See, even if you are disciplined enough to put money aside in an
account – the fact that it is sitting there and you aren’t spending it is
a mental drain.
What a pain.
This comes from the research
performed by American social psychologist Roy Baumeister. Basically unfulfilled
satisfaction distracts you from your task and hand. This in turn reduces your
performance in all areas of life. Put simply – if you save money in an account
you have access to, it’s simple existence will demand you spend it. If you
don’t, your brain will be distracted until you do.
Again, what a pain.
So how do we achieve two things:
Build up a guilt free amount of
money to spend once a year on something big
Do so in a way in which we aren’t
reminded of every time we look at our bank accounts.
Luckily, you’ve come to the right
person – I do this for a living. You build up a savings accounts with regular
deposits in a side account that you can’t spend with a card.
“Build regular deposits in an account you don’t
have instant access to. By accumulating savings in account you don’t think
about everyday, you avoid the decision fatigue associated with the constant
desire to spend it.”
See my journey from sojourn
savant to lifestyle finance expert took over five years of small regular
improvements (plus another five years previously in accounting – but who’s
counting). When I woke up on a beach in Southern France five years ago and
decided I needed to get my act together, I didn’t make a large knee jerk
reaction. I built success with little steps over a period of time.
From my professional experience
of handling the cash flow of many young professionals over the years, I can say
this applies to the personal finance space more than anything else.
And so like everything else, how
do we reduce the barrier to entry? How do we make this easy on you? Simple –
build regular deposits in an account you don’t have instant access to. By
accumulating savings in account you don’t think about everyday, you avoid the
decision fatigue associated with the constant desire to spend it.
“If you were to set in motion today a $10 a week
regular deposit arrangement, next year for Christmas there will be around $500
waiting for you to spend.”
Great, so where can you find
these types of accounts? Well, what about opening a new bank account with a new
bank? That would work right? Why of course! I’m sure you’re a massive fan of
the banks and can’t wait to open another account with another institution….
To save that hassle you could
always open another bank account with your current provider. But then, we both
know a simple transfer is 0.2 seconds away from spending. That’s going to
defeat the whole purpose of cognitive minimalism. We want the money far enough
away from you so you don’t have to think about it, but close enough to spend
when the time is right. So what are you to do?
While Raiz is a financial
literacy tool to help you engage with your money, it has a lesser known
function called regular deposits. All this does is automatically move a set
amount across each month into your account. If you were to set in motion today
a $10 a week regular deposit arrangement, next year for Christmas there will be
around $500 waiting for you to spend.
And in the meantime you’ll see
the market go though it’s classic roller-coaster up and down. It will go up, it
will go down. And withstanding any kind of cataclysmic wild events – it will
only ever mean a couple of dollars up or down as investment amount is
comfortably low. The benefit however is your
investor intelligence will increase while simultaneously building a small
portfolio in the background that doesn’t create decision fatigue. For more information on Raiz fees, click here.
Big plans succeed with little
steps.
In this example, $10 a week
put aside over 52 weeks would equal $520 if there were no movements in the
market. Obviously this is a theoretical case study with the end result being
above or below this amount. The case study mentioned above is not a suitable
long term investment strategy as anything less than five years in the market is
considered too short of a time frame to benefit from returns. Instead the case
study above is simply to provide education around the benefit of consistently
making small regular deposits into an investment account – the withdrawal after
52 weeks is not mandatory. Raiz cannot provide any certainty around how much
money an investor would be able to withdraw in the event they followed the
above case study as investment returns are unpredictable, and past performance
does not provide insight into future performance.
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Important Information
The information on this website is general advice only. This means it does not take into account any person’s particular investment objectives, financial situation or investment needs. If you are an investor, you should consult your licensed adviser before acting on any information contained in this article to fully understand the benefits and risk associated with the product.
A Product Disclosure Statement for Raiz Invest and/or Raiz Invest Super are available on the Raiz Invest website and App. A person must read and consider the Product Disclosure Statement in deciding whether, or not, to acquire and continue to hold interests in the product. The risks of investing in this product are fully set out in the Product Disclosure Statement and include the risks that would ordinarily apply to investing.
The information may be based on assumptions or market conditions which change without notice. This could impact the accuracy of the information.
Under no circumstances is the information to be used by, or presented to, a person for the purposes of deciding about investing in Raiz Invest or Raiz Invest Super.
Past return performance of the Raiz products should not be relied on for making a decision to invest in a Raiz product and is not a good predictor of future performance.
