Cost cutting your way to riches?….Stop! Posted on November 8, 2018December 16, 2018 by Arjun When reviewing your finances, on a high level there are three areas you usually consider. IncomeSavings ( Let’s now call this STORAGE)Expenses (Let’s now call this RESTRICTIONS) If we’re trying to prioritise these, it’s very often that we hear and say, restrictions is the most important! Now when we think of restrictions, what does that mean? It basically means lowering your expenses and minimising them. One example that is commonly heard is ”THE COFFEE CUTTING” Stop your coffees, reduce the coffees, the breakfasts that you have. Others would then say – “Look, if you can’t do it, you’re probably not going to be able to get into the property market.” That’s what we hear all the time. For most, restricting this much is just not sustainable. Because when I found myself restricting things first, I then tried to save what was leftover. Doing this, you will very quickly realise that when you flip that around and change your priorities by saving first (or storing first) your savings/storage goals plus restrictions are all being managed much better. Priority number one = INCOME & HOW MUCH OF IT YOU CAN STORE Based on my personal experience and that of my most successful clients, the sweet spot is at about 40% to 50% of your net income moved into your savings account on payday or at latest the day after. If you start off with the income first, the storage second and then your restrictions, you’re going to be able to massage your restrictions better. And most importantly, rather than a goal of how much or little you should spend, you’ve already achieved a goal of storing 40% of your income. You could then challenge yourself to move this up as your comfort levels improve. Why do I keep saying “STORAGE”? What does storage even mean? Why not say savings? Because when I was saving, I was simply saving to save. Although its just a ‘word’, it was a mindset shift too. When storing my money, I know I’m going to invest it one day to hopefully multiply the money or generate passive income from it. For now it was just temporarily stored for later use. Don’t touch! By now you have done the hard yards – You paid your self first into your storage account, you have goals and timelines of how much you will have by when as it’s measurable e.g. ‘40%’ of your pay put aside (minimum), and now what’s left is yours! (almost all yours). This is the part when cost cutting comes into play and you need to get it right! After careful budgeting and removing the things I didn’t need I turned to a method to ensure I would not find myself in trouble. I used joint accounts with loved ones that required ‘two signatures to operate’ as my ‘jail’ on the funds. Although not everyone can do this, it is one way that I used to ensure it was all in on my cost cutting, now that the good deeds were done. But it’s not working??? “40% just cant be done!! 40% on my current wage is just not going to happen, I am restricting all I can!” At this stage, most either give up or look for help but don’t get the honesty given to them. This is why cost cutting your way to riches is not sustainable for many and not achievable too. For some it could genuinely be an expense problem they don’t see, but for the majority it’s an INCOME PROBLEM. INCOME INCOME INCOME! If the behaviours are there and cost cutting is present, to achieve your savings goals and do it sustainably rather than the up & down roller coaster we need to get the attention on INCOME (the topic many don’t like to talk about). Sure it is the harder to work on instead of just cutting out expenses but it is the most powerful area to focus on when you have your restrictions managed and storage system in place! Just remember, on financial statements the INCOME LINE is the big TOP LINE that carries all of the smaller expenses. It is one that must overpower anything in its way, so the BOTTOM LINE has something to show on the other side. Regards Arjun Paliwal Disclaimer – Contents of this document are of general nature only and should not be relied upon solely when making an investment decision. InvestorKit nor any of its directors, associates, staff, or associated companies bear any liability from any action derived from the contents of this email. One should always seek third-party investment information from relevant parties such as legal, finance, and accountancy enquiries.