Are you struggling to take control of your finances? There is one simple habit you should adopt to transform yourself from someone who survives from pay cheque to pay cheque to a solvent investor with a rosy financial future.
Pay yourself first
Living on the financial edge is stressful but there really is an easy habit which can break the cycle of stress and set you on a new path: paying yourself first.
Often referred to as reverse budgeting, the concept of paying yourself first really is easy enough for a child to understand. In fact, chances are your parents tried to drum this habit into you as soon as you got your first teenage job although you might well have preferred to ignore them and opt instead for the buzz of spending your own hard-earned cash. It’s time to rein in that need for instant gratification in favour of a more long-term approach to financial management.
It’s called reverse budgeting because as soon as you get paid you save before you spend anything. Before you pay your bills, before you buy food, before you succumb to those new trainers, before you take your partner out for dinner…. Saving becomes your number one priority each month.
Start with a small amount, maybe $100, which you commit to saving each month. Set up an automatic transfer so that as soon as your salary hits your bank account, that amount is filtered out into a separate account, out of temptation’s way. Don’t touch this money unless you have a real emergency. And that new TV you’ve got your eye on is NOT an emergency!
After a while, you won’t even notice that you have $100 less to spend each month. But you will notice the growing balance in your savings account. You may even find yourself inspired to increase your monthly savings amount, especially if you receive a pay rise or unexpected windfall.
You will have created a new habit and I guarantee it will make you feel good. As a bonus, with money saved and the essentials covered, you can enjoy spending whatever is leftover guilt-free, and more importantly, you will be in a position to invest for the future. Don’t keep more in cash than you need to because savings accounts pay extremely low interest. Get that money working for you with canny investing instead.
The benefits of reverse budgeting
You won’t spend hours budgeting – the budgeting part is taken care of when you decide how much you can afford to save each month. After that, it’s a case of ensuring you only spend what you have in the bank.
A broad, goal-based approach – reverse budgeting focuses on bigger picture goals without getting hung up on the nitty gritty.
Easy to set up – once you’ve put that automatic transfer in place, you’re done.
One decision – you make one decision, deciding how much to save and if you automate the process then no further decisions are needed thereafter.
Reverse budgeting applies to both saving and investing. Whether you are using it to build your emergency fund, save for retirement or build wealth for your financial future, it is a superb technique to achieve all these important financial goals.
I’m going to say it straight: financial illiteracy is widespread and a lot of people are going to have miserable retirements because they are failing to save and invest.
Don’t let yourself be one of them. If you want to have a comfortable and secure life when you retire, it’s essential that you become an investor.
At the very least, you should invest into a pension because a state pension will be meagre – if you are even eligible for one. If you have a workplace pension, make the most of it, and if you don’t, or if it is insufficient for your future needs, seek advice on pension wrappers with investment funds that are suitable for your situation. There is an extensive range available to expats so there’s bound to be a solution to suit your needs. The important thing is to start as soon as you can as it takes time to build a decent-sized nest egg and the longer the timeframe you have, the more you will benefit from compound interest.
To get started, find yourself a competent and professional financial adviser. They will help you to formulate a long-term financial plan and some concrete goals to work towards as well as advising on the most suitable investment products for you. An adviser is also great for keeping you disciplined in your saving and investing because they will hold you accountable.
If you are an expat in Asia and looking for the best way to invest, why not book an appointment with me at email@example.com for a free consultation. I’d love to accompany you on your journey from financial woe to financial security.
I work as a Financial Planner with expat clients to meet their financial planning needs and goals, with a focus on adequately protecting expats & their families, and helping people to grow their savings over the long term. I strongly believe in building meaningful and lasting relationships with clients to ensure the best client outcomes are achieved.