The ‘As If’ Principle

Read More

One of the most useful techniques for planning ahead with your money is what I call the ‘As If’ Principle. It is a really simple technique that clearly identifies in advance whether a specific goal is achievable, while at the same time, helping you achieve it! The time to use this technique is when you have a future goal which has the effect of either reducing your income or increasing your expenses on an ongoing basis. Examples of such goals are:

  • Choosing to retire or work less
  • Sending your children to a private school
  • Preparing for possible redundancy
  • Planning to take parental leave
  • Moving from full time to part time work
  • Taking a job with less stress and less pay
  • Giving up your job to study at university
  • Buying your first house
  • Buying a bigger house with a bigger mortgage
  • Borrowing to buy a car

Here is how it works, and it really is simple!

Step One: Prepare a new budget for yourself, ‘as if’ you are already taking your planned action; that is, a budget based on less income or increased expenses.

Step Two: Start living according to your new budget ‘as if’ you are already in your goal situation.

Step Three: Save the difference between your current and planned income or current and planned expenses into a savings account.

 This allows you to test your ability to achieve your goal, while adding to your savings. The more time you have to plan ahead, the easier it will be to test your budget, increase your savings and achieve your goal. If you find you are unable to live on your new budget without dipping into your savings, review the cost or timing of your goal and whether it is achievable.

Related Articles

Investment
Liz Koh

Responsible Investing

There is a worldwide trend for investors to want to make a positive contribution to the world by investing in companies that are socially and environmentally responsible. If you are passionate about the effects of climate change, the scarcity of food and water, and social or environmental policies in general, then you will no doubt wish to ensure that the companies in which you invest are going about their business in a manner that is consistent with your views.

Read More »

Stay in the loop

Keep up to date with the latest developments from Enrich Retirement