Don't waver on savings discipline
Newcastle Herald
Thursday March 24, 2011
HOUSEHOLD budgets are under growing pressure as prices keep rising, and there is no relief in sight.Petrol will go through the roof when the US dollar strengthens again, interest rates are in an upward trend, and the proposed carbon tax will only make matters worse.It's a challenging time, but those who use the right strategies will get by.This week ASIC made a valuable contribution to consumer education by launching its Money Smart website at moneysmart.gov.au.But it also helps to understand a principle that I value above all others.I call it the "guaranteed secret of wealth" and it's based on the concept that money in your wallet gets frittered away, and that everybody will pay their commitments and spend the rest.This is why nobody has any trouble paying their PAYG tax or the taxes that are levied through excise and sales, gambling and fuel taxes - they are taken automatically.Let me take you through a couple of real-life experiences. Bill and Mary and five other couples go out to dinner. The bill comes to $1200 and Bill offers to put it on his credit card to get the reward points. The other couples pay him $200 each before they say goodnight. So Bill is even - everyone has paid their share and he goes home with $1000 cash in his wallet.Six weeks later Bill's credit card statement arrives but he has no money to pay it. Where did it go?Jack and Jill had been paying $1200 a month off their house loan for years.Two years ago the debt was paid off and there was no monthly payment to make any more.It's now 24 months since the last repayment and how much do you think they saved in that time? Correct! Not one cent. What happened to the $28,800 they would have paid over the past two years if they still had the loan?Time and time again at seminars I have asked all those who have paid off a loan to put their hands up.The result is a sea of hands in the air. Then I say: "keep your hand up if you invested without fail the payments you didn't need to make any more."All the hands sink and there are sheepish grins everywhere. Of course they meant to do it - they just never got around to it.Some years ago a person I'll call Pat came to one of our branches to ask about investing $6000.This is not unusual except that Pat has few assets, lives on a government benefit, and rents a cheap unit.You would be right in assuming that Pat is like many who live near the poverty line, through circumstances that are often outside their control.What makes Pat different is that she has no intention of staying where she is. She has that resourceful spirit that once made this country great.The obvious question is, how could somebody in her situation manage to save up $6000?The answer is enlightening. Pat has a simple rule - never to spend a $5 note.Every time a $5 note comes into her possession it goes straight into a small compartment in the back of her wallet.As soon as she gets home it's transferred to a sealed money box.She has admitted that on a few occasions when breaking a $10 note she has asked for the change in coins so as not to get a $5 note, but that doesn't happen too often.This is a classic example of the principle that we all pay our commitments, and spend the balance.All we have to do to create wealth for ourselves is to start to make saving a commitment, instead of something we try to do with what's left over.Noel Whittaker is a director ofWhittaker Macnaught Pty Ltd.His advice is general in natureand readers should seek theirown professional advicebefore making any financialdecisions. His email isnoel.whittaker@whittakermacnaught.com.au.
© 2011 Newcastle Herald
