“I don’t make enough money.”
This could be the most common reason people find it challenging to save up some substantial money. If this is you, please stay on and let me help you unveil some blind spots.
Saying that it is a “reason” is somehow a polite way of saying it. To be blunt, I think this could be an “excuse” or an invisible barrier that you impose on yourself.
First and foremost, I do believe it is best to focus on making more money. Especially when you are just starting out. Aim for a double-digit increment every year in your career. Set a goal to have a 5-figure monthly income before age 30. Double your income every 3 years, etc.
Some people think that making more money will solve all their financial problems. However, that is not always the case.
When you strive hard to increase your income, you will have to take care of the “savings” side and integrate it into your lifestyle and habits. So if you can save money when you are not making much, I am sure you will be able to save much more when you are actually making more!
Let’s get to understand the blind spots and how to tackle them.
Blind Spot #1: Perceive low income, but it is relative
Let’s say you are making RM5000 now and you think that it is not enough. Think of the person below you, maybe your subordinate in your company, earning only RM2500. Your income is double his. He actually thinks that you make a lot of money.
The point is that it is relative. For example, I heard my wife talking about high-cost geo and low-cost geo. The US is a high-cost geographical area. And even within the USA, the same employment position is paid differently based on your location. If you are in California, your pay is maybe 50% more than your counterpart in Oregon. What I heard is that Penang is a low-cost geographical area. So the cost for the MNC to hire an engineer in the US is sufficient to hire 3 in Penang.
The fact that your income in absolute terms is low, it could be low for a valid reason. Penang’s engineers are paid lower because the living expenses there are much lower. So it is indeed relative. On the other side, it doesn’t mean it is easier for the engineers in the US to save more money.
To counter this blindspot, stop giving excuses that “I don’t make enough money”. Saying this just makes you powerless and lose control over your finances.
Blind Spot #2: Spend first, save what’s left
The common practice, especially when we get the first paycheck, is to spend it on instant gratification. My first big paycheck was the RM5000 JPA study loan I received during my third year of studying at UTM. Almost immediately, I called a music friend in Johor Bahru who sold musical instruments.
“Find me an 88-key piano keyboard cum MIDI controller.”
And he used up almost all my budget. I bought the Korg SGProX for RM4800.
So whenever you see money coming in, and the first thing that comes to your mind is “what can I spend this for” you are in big trouble. The priority isn’t proper.
Switch the thoughts around. Instead of spending first, and saving what’s left, start paying yourself first. Set aside money for your freedom fund, the money that fuels your early retirement. The money that you will never spend. The money is meant for investment capital so you can grow your wealth and one day has enough passive income. You can’t win in the game of money if you cannot prioritise what is essential for the long term.
To counter this blindspot, always pay yourself first. Every paycheck you receive, allocate a specific portion for savings and investments. Only then do you spend the rest as you please.
Blind Spot #3: 100% budgeting, no room for the unexpected
Do you do budgeting for yourself and your household? A budget is just a spending plan. Often, many people do what I call 100% budgeting. They do budgeting based on the entire take-home pay.
Let’s say you bring home RM10,000 a month. And you have a budget to allocate this RM10,000 for various categories like housing loan instalment, groceries, transportation, entertainment, etc. It is good if you can stick to the budget strictly. Problems arise when there is an unexpected event, e.g. accidents, medical issues, major repairs of your home or cars, you name it. Then the budget is out of whack. That’s when you have to touch your savings.
People who do this will often have excuses like “this unfortunate event wiped out my tiny savings”.
To overcome this blind spot, I suggest that you allocate a certain amount for this kind of event. Maybe a 5% just for ad hoc expenses. If there are recurring expenses each year, like a yearly insurance premium and major vehicle maintenance, you should allocate a budget for it already.
Blind Spot #4: Save to spend, not for financial independence
If you find that you continuously deplete your savings for some short term financial goals, you could be missing the big picture.
For example, you might save up RM50,000 and use it all to remodel your home. Or you save up to RM10,000 and spend it on an overseas vacation. Or someone saved up RM20,000 and put it as a down payment to buy a new car. At the end of the day, the savings are always used up for some financial goals, EXCEPT the goal to achieve financial freedom.
You see, the savings in your freedom fund would not be spent. That’s the capital, the seed money or the nest egg. Think of it as your durian tree. You plant the durian tree and nurture it and let it grow to maturity before it can bear fruits. It only delivers durian after 8-10 years. If you don’t chop it down, it can have a lifespan of 80-150 years.
Similarly, if you are always saving money to spend, you will never have enough to enjoy financial freedom. It is like chopping down your durian tree whenever it grows to a specific size but yet to bear fruit.
To counter this blindspot, make “saving for financial freedom” your number one savings goal. For the other plans like upgrading your house, buying a new car, going for an expensive vacation, those will have to get a lower priority. Of course, you can budget for that. But that’s when you have your “financial freedom” goal as your primary aim.
Blind Spot #5: Lack of Investment Knowledge
Most people who lack monetary resources think that investment is only for the affluent and wealthy. Common thoughts “I don’t even have enough money to spend now. Why bother about investing at all?”
“Investment is risky.”
“The stock market is just another legal casino.”
So it is natural that some people will talk themselves out of it. They are not good at investment, and they will never be good at it.
This is a common blind spot. You learn about investing because you want to make your money work harder. And during this internet era, don’t think that your savings are too tiny that it is not worth investing. Because it is now almost frictionless to invest with so many low-commission or even zero-commission brokers begging for your business.
Successful investing requires skills, knowledge and also patience for compound interest to work its wonder. When is the best time to learn about investing?
Let me ask you these:
- When is the best time to learn to swim? At toddler age, or at the time when you found that the boat was sinking?
- When is the best time to learn to drive? When you are old enough to take driving lessons, or when there is nobody to drive you to work anymore?
I bet you get the idea now. The best time to learn investing is as early as you can. You don’t need to wait until you have RM100,000 in the bank to learn about stocks or properties.
I found that people who have investing skill sets can save more money. The reason is that they already know what they can do with the money to see results. They will naturally put more capital to build a more significant portfolio.
So equip yourself with financial knowledge and investment skills. Naturally, you will be prone to save more money, accumulate your capital, and reach your financial freedom goals much faster.
Conclusion: How to Overcome the Blind Spots
The above are the five blindspots and here are what you can do to overcome them:
- No matter how low your income is right now, make savings a habit. Set aside a portion no matter what.
- Prioritise your savings goals and pay yourself first
- In your budget, always leave some room for the unforeseen
- Make your #1 savings goal – to build a freedom fund that you will never spend – that’s for your financial freedom
- Learn and acquire investing skill sets and knowledge as soon as you can. Start right now if you haven’t yet done so.
I conduct live financial webinars every week. You can attend for free. To get the invitation, make sure you get on my email list.
Be smarter with money!