Feilding-Rangitikei Herald

Spending less than you earn

- ROB STOCK MONEY MATTERS rob.stock@fairfaxmed­ia.co.nz

I was asked at a barbecue for my best tip for how to get ahead with money. Wow, I felt put on the spot.

After the better part of two decades speaking to money experts, what nugget of wisdom would my Saturday afternoon, sausage, beer and cake-addled brain bring forth?

I fumbled for an answer in my suddenly blank mind. ‘‘Well, you can start by spending way less than you earn,’’ I said, which sounded a little critical, as if I were accusing my questioner of being a spendthrif­t.

Like a patient playing word associatio­n with their psychiatri­st, my answer was revealing.

Had I taken more time, I might have glibly remarked that a good starting point was to be enter the workforce at a time when houses were sensibly priced.

But ultimately, getting wealthy requires generating a surplus to save, invest and pay off debts.

Wealth accumulati­on for the humble salary slave is a steady

process. To prosper, wage slaves need to budget to have money left over at the end of the month, which can be put to work earning interest (such as bank deposits or loans), dividends and capital growth (shares, KiwiSaver and so on), or property.

The money you invest need not all be your own. Harvest those KiwiSaver subsidies, people!

More entreprene­urial types eschew steady-as-she goes wealth accumulati­on, and may go years ploughing every cent they earn back into their business.

For them, the income/ expenditur­e ratio turns positive when they sell the business, or it starts turning a profit.

Luckily, at the barbecue most people were well-paid, and, like myself, had been sensible enough to be born in kinder times, having bought their million-dollar homes for a fraction of their current value, and where young people spent more of their income than they can today, and still expected to get ahead.

‘‘Getting wealthy requires generating a surplus to save, invest and pay off debts.’’

Deciding on how much you should be saving is tough.

For devotees of the internetsp­awned cult of the extreme frugalism, anything short of saving 40 per cent of your salary is failure. Some claim stunning results, and with good reason.

Clearly, the bigger the surplus, the faster your wealth will accumulate, and your debts fall.

With rents and mortgages so high in Auckland, ordinary families have 40 per cent bites routinely taken out of their incomes by housing costs.

Saving another 40 per cent isn’t really an option, except for people with unusual living arrangemen­ts (say, living with parents, taking in boarders, renting rooms on Airbnb).

But here are the starting points for working out what you want to save. 1. Set your ambitions. 2. Use online calculator­s at Sorted.org.nz to work out what you need to do to achieve them.

3. Adjust your behaviour and spending to get on the path to those goals.

There’s one more thing you might do.

Read this question, like I did at the barbecue, and take note of the first thing that pops into your head: What’s holding back your saving?

Now, deal with it, and stop using it as an excuse not to get ahead.

 ?? 123RF ?? Confront the deep-seated reasons for spending too much.
123RF Confront the deep-seated reasons for spending too much.
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