{"id":3091,"date":"2016-06-09T07:05:11","date_gmt":"2016-06-09T07:05:11","guid":{"rendered":"https:\/\/raizinvest.com.au\/investors\/save-like-a-vault-spend-like-a-rock-star\/"},"modified":"2024-04-04T18:27:05","modified_gmt":"2024-04-04T18:27:05","slug":"save-like-a-vault-spend-like-a-rock-star","status":"publish","type":"post","link":"https:\/\/raizinvest.com.au\/investors\/blog\/save-like-a-vault-spend-like-a-rock-star\/","title":{"rendered":"Save like a vault, spend like a Rock Star"},"content":{"rendered":"
\"image\"<\/figure>\n

By Clayton Daniel<\/i><\/p>\n

I
\nlove it when a simple mathematical illustration can explain things clearly.
\nThink the Pareto Principle of 80\/20. Pretty much a well-established fact you
\nwill get 80% results from 20% of the effort. Simple, easy to understand, and
\npretty accurate.<\/p>\n

\u201cPeople
\nare split almost down the middle 50\/50 between savers and spenders\u201d<\/i><\/p>\n

The
\nsame goes with standard deviations. We all know the bell curve, but the fact it
\nalmost perfectly summarises the population in terms of whether they are a
\nSpender or a Saver is almost uncanny.<\/p>\n

Based
\naround research from a range of sources and my own experience as a former tax
\naccountant and financial adviser, I\u2019ve come to the conclusion people are split
\nalmost down the middle 50\/50 between savers and spenders. Half the population
\nspend everything they earn, and the other half manage to put some money aside.
\nIt gets a little more interesting when you break those two halves up even
\nfurther between moderate and extreme.<\/p>\n

Run-of-the-mill
\nSpenders<\/b><\/p>\n

By
\nthat I mean, the first deviation of Spenders are your everyday, run-of-the-mill
\nSpenders. They are the type of person that runs out of money just before pay
\nday, and are relieved when the next pay cheque comes in. They don\u2019t really get
\nthemselves into too much trouble, but aren\u2019t really interested in doing
\nanything to \u2018get ahead\u2019 other than focusing on the next pay rise or promotion.<\/p>\n

Pay-check
\nto Pay-check Spenders<\/b><\/p>\n

The
\nsecond deviation Spenders get a little more serious as these people start to
\nget themselves into a little bit of trouble. The first filter they gauge each
\ndecision with is \u2018what do they want\u2019? The basic premise is if they can\u2019t afford
\nsomething now, they will with next month\u2019s paycheque. These type of people
\ncarry around the $10-$20k debt in credit cards and personal loans and don\u2019t
\nreally think it\u2019s a problem. The idea of putting money aside for the future is
\nredundant as they have \u2018bills to pay now\u2019.<\/p>\n

Train
\nWreck Spenders<\/b><\/p>\n

The
\nthird deviation on the Spenders are train wrecks. The problem is, by looking
\nfrom the outside in, you can never tell. These people make up the 2.5% of the
\npopulation that look amazing on the outside, but peer beneath that surface and
\nthings are going to hell in a handbasket. These type of people are in
\nastronomical amounts of credit card and personal loan debt and really only have
\ntwo ways out, lots of hard decisions or bankruptcy. The problem is generally
\ntoo big to admit to themselves, and instead they focus on a mythical \u2018big pay
\nday\u2019 to solve all their problems.<\/p>\n

The
\nSavers on the other side of the divide may sound like they have everything
\ntogether, but they too experience their own set of problems.<\/p>\n

Save
\nto Spend Savers<\/b><\/p>\n

Let\u2019s
\nfirst examine the first deviation, the regular Savers. Interestingly, these
\ntype of Savers only save to spend. That\u2019s right, the majority of Savers are
\nreally just delayed Spenders. These Savers will save for a specific purpose, be
\nit a holiday, a new vehicle, or a home. The purpose of their savings is to
\nfacilitate the purchasing of things they want to spend money on without going
\nin to too much debt.<\/p>\n

Savers
\nwith Intent<\/b><\/p>\n

The
\nsecond deviation Savers have a little more intent in their savings. It\u2019s only
\nat this point do we finally meet people who are interested in putting money
\naside for later in life. They will put aside the classic 20% of their salary to
\nbuild long term wealth, have no personal debt, but struggle to find the balance
\nbetween reaching lifestyle goals and not spending too much money. I understand
\nthis issue, because if you are disciplined enough to stick to putting money
\naside, it\u2019s hard to turn that switch off.<\/p>\n

Dollar
\nSaved is a Dollar Earned Savers<\/b><\/p>\n

And
\nfinally the third deviation or most extreme Savers are the one\u2019s solely focused
\non building wealth from a young age and put every single cent aside to achieve
\nthat goal. They want to save every single cent, any money spent is money lost.
\nTo them \u2018a dollar saved is a dollar earned\u2019. They are the kind of people who
\nnever do anything social, and on the off chance you get them to join you, don\u2019t
\nget stuck on a round of drinks with them as we both know you\u2019ll end up carrying
\nthem.<\/p>\n

\u201cThe
\nmentality of each side means that once the grooves of consistent behaviour have
\nset in, it is extremely hard to change\u201d<\/i><\/p>\n

So
\nyou have your Spenders on one side and your Savers on the other, and never the
\nboth shall meet. The mentality of each side means that once the grooves of
\nconsistent behaviour have set in, it is extremely hard to change. Not to say it
\ncan\u2019t be done, but it\u2019s hard. And if there is ever any conversation around
\nchange, it is always to move someone from being a Spender to a Saver.<\/p>\n

\u201cIt\u2019s
\nas if the answer to all of life\u2019s issues can be solved as one moves from being
\na Spender to a Saver\u2026.and here in lies the problem\u201d<\/i><\/p>\n

The
\nproblem the Spenders will attest to here, is it\u2019s much more boring on the
\nSavers side. And let\u2019s face it. They have a point. It is. But I think this idea
\nepitomises the major flaw in our corrosively boring \u2018personal finance\u2019
\neducation. It\u2019s as if the answer to all of life\u2019s issues can be solved as one
\nmoves from being a Spender to a Saver.<\/p>\n

\u201cThe
\nanswer is not to go from spending to saving, it is to exist simultaneously
\neverywhere on the divide. To save like a vault and spend like a Rock Star\u201d<\/i><\/p>\n

And
\nhere in lies the problem. What self-respecting Spender is going to hang up the
\ngloves and become a penny pincher? It\u2019s not going to happen. In fact it rarely
\ndoes happen. So do we just leave it there? An endless array of personal finance
\nspecialists, one after the other repeating this advice to no avail? Is this the
\nonly answer? Or once again, have we all just taken this advice from people with
\nno real world experience?<\/p>\n

\u201c
\nThe answer is not to feel bad about spending your own money, but instead to
\nhave an amount set aside for guilt free spending\u201d<\/i><\/p>\n

After
\nmanaging the cash flow of people on all ends of this divide, I can tell you the
\nanswer is not to go from spending to saving, it is to\u00a0exist simultaneously
\neverywhere on the divide<\/i>. To save like a vault and spend like a Rock Star.
\nThe answer is not to feel bad about spending your own money, but instead to
\nhave an amount set aside for guilt free spending. The goal is not to have \u2018long
\nterm savings\u2019 as the word \u2018savings\u2019 is super boring and un-engaging, but
\ninstead to have \u2018investments\u2019. And the goal is not to avoid travelling, but to
\nhave a \u2018lifestyle bucket\u2019 to support your need and want to live the life you\u2019ve
\nworked hard for.<\/p>\n

\u201cAutomation.
\nAutomation is key\u201d<\/i><\/p>\n

But
\nhere is the hard part. How do you hold two opposing thought patterns – both
\nSpender and Saver \u2013 at the same time? If you were lucky enough to\u00a0read my last article for Raiz<\/a>\u00a0you will know the
\nanswer. Automation. Automation is key. Remove your fallible self and the
\ninefficient use of your own time and decision capacity and outsource to
\nautomation.<\/p>\n

Stop
\nwasting your time managing your own money and let technology do this for you.<\/p>\n

Clayton Daniel<\/a>,\u00a0Financial commentator and
\nauthor of upcoming book Fund Your Ideal Lifestyle<\/i><\/p>\n

 <\/p>\n

Important Information<\/strong><\/span><\/p>\n

The information on this website is general advice only. This means it does not consider any person\u2019s 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 Raiz product.<\/p>\n

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Past return performance of the Raiz product should not be relied on for deciding to invest in Raiz and is not a good predictor of future performance.<\/p>\n","protected":false},"excerpt":{"rendered":"

By Clayton Daniel I love it when a simple mathematical illustration can explain things clearly. Think the Pareto Principle of 80\/20. Pretty much a well-established fact you will get 80% results from 20% of the effort. Simple, easy to understand, and pretty accurate. \u201cPeople are split almost down the middle 50\/50 between savers and spenders\u201d […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mi_skip_tracking":false},"categories":[1],"tags":[],"yst_prominent_words":[]}