Let me explain further.
One of my favourite personal finance authors, David Bach, suggests that if you save 1 hour of your income every day and spend the rest on everything else, you will accumulate a significant amount of money and the math actually backs his claim up. The average weekly wage in Ireland is c. €700 which translates into an hourly salary of €22 and I know for many it may be over this amount but for the purpose of this exercise, let me work off this figure. So, let’s assume that you and your partner commit to saving 1 hour of what you earn every day:
In Bach’s bestselling book, Start Late Finish Rich, he claims you don’t have to start saving very early to end up with a large amount in your savings account when you are older, but obviously saving at a younger age will help you get there easier and faster but it is not beyond anyone’s reach, regardless of their age to build up a significant of money – all you have to do is commit to saving 1 hour of your income every day, can you that? So how about the amount you earn between 9am and 10am every day is yours to keep and is going into a savings or pension account and the amount you earn for the rest of the day can go towards taxes, loan repayments, utilities and so on. And I appreciate this is easier said than done given the cost of servicing debt and the costs associated with raising children and so on but if you did find it difficult to save 1 hour of your income every day, could you and your partner save 20 minutes? Because if you did, in 25 years you would have c. €362,272.15 sitting in your account so it doesn’t have to rounded to saving an hour of your income either, don’t discount smaller amounts and think the amount you will accumulate won’t be worth the effort, this clearly isn’t the case. When it comes to saving and how much we should be setting aside each month, I believe we need to start changing our behaviour and our mind set from saving a certain rounded amount each month to saving based on the amount of time we spend working each day and paying our self a portion of the income we receive for that day. When I ask people about the amount they save each month and why it is a particular amount, I would say that nearly 100% of them have no rationale behind the number – it’s an amount they feel they can afford to set aside each month or it’s even a number they continued on with from the good ole days of the SSIA accounts of the 90’s. And some of the amounts are quite big but when I equate them to the amount they earn each day, they are small, so do people not value their time and effort and the amount they earn as much as they should? One person I was working with recently was saving €250 each month, an excellent figure, but this amount compared to the number of hours he was working each month was actually very small because he was saving just 3.7 hours out of a typical month which saw him work 180 hours. And please do not get me wrong, I am not suggesting that we should all work as hard and as long as we can now and save every cent we earn, so that we can live comfortably when we retire. Doing this would be insane because you would be denying yourself the things that keep you healthy, happy and sane today but we do need to start valuing our time a bit more because if we do, our savings levels will soar and I’m betting our productivity levels at work will increase as well. We work on average 1,529 hours per year, and let me refer back to the example about a couple saving 20 minutes of their income every day because if they did, they would accumulate c. €362,272 in 20 years – do you know how many hours that is over one year – it’s just 174 hours’ between them out of an average of 3,058 working hours for two people – it doesn’t seem that much when you look at it this way does it? And again it is very important to consider saving this way otherwise, your chances of achieving a considerable sum of money or becoming that millionaire from saving alone are greatly reduced. If you just randomly select a rounded number, with no great particular though process, then this is what is going to happen: If you save €100 per month, it will take you 58 years 6 months before you reach the magic €1M. It means if you are 25 you will be 83 years old before you can call yourself a millionaire. If you double the amount to €200 per month, then it will take you 48 years, if you save €400 you will be a millionaire in 39 years’ time - €750 per month will take you 31 years and €1,000 in 27. For me, when it comes to saving each month, it always helps if you have a reason why you are saving in the first place. And it is a question I ask of my clients all of the time – why do you save as much or as little as you do and what are, you trying to achieve? And most people tell me it’s for security, or for freedom and then we speak a little more the real reasons come out: “I want my children to have more opportunities than I did” “I don’t want to worry about money like my parents did” It might be a useful exercise for you after you have read this article to give a little bit more thought to why you are saving in the first place. And to help you uncover your reasons you should look at:
And the reason why I save everything I earn everyday between the hours of 8.30am and 9.15am are because I consider my family to be my highest priority and I work as hard as I do, because I want the financial freedom to be able to spend as much time with Roseann and our three children and give them a foundation for a life full of opportunity – that’s my WHY.
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September 2015
Liam CrokeManaging Director of Harmonics Financial Categories |