Last Friday, I had a fascinating conversation over lunch with a private investor, let’s call her Katie, about the financial decisions she’s made during her life, which have now given her what most of us seek – financial independence.
I’ll share with you today the top three things that stood out to me in hope that you can gain some insight into the power of incremental decisions. They really boil down to the one percenters early on in life.
Credit cards are great, as long as you know how to use them
Credit cards are a bad word these days, but they’ve allowed many, including Katie, to fly around the world (business class), multiple times – for free!
The world of banking is a constant battle to win new customers. To win new customers, large ‘sign-on’ bonuses are offered. These offers are seldom made to existing customers, which means in order to be eligible for such offers, you must become a ‘new customer’, that is, cancel your existing card and apply for a new card (preferably one offering the greatest sign on bonuses. They’re called ‘point chasers’. It’s made websites such as Point Hacks a popular stopover (pardon the pun) for point chasers.
As long as you make smart choices with credit, and remain disciplined, it can help you achieve some of your life goals such as travelling, or travelling in a little more comfort.
Live below your means
This is easier said that done (but it needs to be done). As we make more money, we tend to reward ourselves by spending more. It’s called ‘lifestyle creep’, that is, where your lifestyle improves as your discretionary income rises. The ironic thing is that the more money we earn, the greater the opportunity we have to save more.
Fending lifestyle creep can pay off big time over the long run. Here are a few ways to combat lifestyle creep:
- Make lump sum payments off any bad/non-deductible debts
- Set up a savings or an investment account and let the power of compounding do it’s thing
- Increase contributions into a tax friendly account such as your superannuation fund
By making incremental decisions such as these, it gives you so much more flexibility later on in life. We all have the option, take risks now and be comfortable later, or be comfortable now and take risks later, it’s our choice.
Live for today, but please, save for tomorrow
You hear financial advisers always talking about the future, whether it’s upcoming school fees or retirement. Seldom is it about today. You only live once, so please, enjoy it and do the things that truly make you happy. This however, isn’t code for spend every dollar you earn (refer point above). It is possible to balance today’s enjoyment with the priority of putting money away for later. It requires goal setting, patience, and discipline. Warren Buffet once said, “someone is sitting in the shade today because someone planted a tree a long time ago”.
The best thing you can do is take advantages of new deals, set up some sort of investment account, and live a little less rich than before. Happy savings.