Financial success comes not from a high income or a high level of education; it comes from the application of just one golden rule. It is that easy, yet that hard. There are five simple words in the golden rule, yet they are the most difficult words to put into practice. Those words are ‘Spend Less Than You Earn’. Some of the most highly educated, high income earners have the greatest difficulty following this rule and, at the end of their working life, find themselves financially far less successful than those on modest incomes who have learned how to put money aside on a regular basis.
The majority of the working population has the potential to save, but whether that is turned into reality will depend on attitudes towards life and money. Saving is a behaviour that is underpinned by psychological factors.
It is interesting that for those who have enrolled in KiwiSaver, the compulsory deduction of at least 3% of their pay each payday has been a relatively painless way to save and, now that KiwiSaver balances are building to quite large sums, the benefits of regular saving are clear to all. Most people are surprised at how quickly their own contributions have mounted up over time. Therein lies the key to how to Spend Less Than You Earn; and that is to be a Secret Saver.
A Secret Saver is someone who sets up a regular transfer each payday into a savings account that is hidden out of sight, out of mind – in other words, not on your list of internet banking accounts and preferably with a different bank than your other accounts. That takes care of the psychological factors. Saving then happens automatically and painlessly and there is no temptation to spend what you can’t see.