How to save money and be rich in your 20s [Part 2]
In part 1, I talked about the basics – saving and investing.
In part 2, I touch on 5 more interesting financial hacks that you can start putting to use today!
Start looking into insurance plans
Look at different plans and take your time to compare them. Look at the various riders – accident coverage, early stage, or whichever is offered in your country.
Insurance should strictly be for health or life expectancy related stuff. Avoid those that are investment-linked.
Those products are usually a no-win for you – you have lesser health coverage and lesser to invest and on top of that, these are more expensive. Keep insurance and investments separate.
Another thing – be careful concerning the guaranteed returns/payouts on a lot of these insurance plans. Ironically, alot of them aren’t guaranteed! They are simply projections based on the current economic situation, policies etc.
Payouts are highly dependent on unpredictable, external factors – economy, how well the company is doing, monetary policies in your country and so on. These things can change on a whim. And NO company can 100% guarantee anything.
Reduce your credit card debt
Or here is a revolutionary idea – just skip the credit card altogether. I don’t have one and my life is fine. It’s not as if I can’t pay for plane tickets or buy groceries or purchase anything I want.
One big reason why people sign up for credit cards are the rewards and the cashbacks they can potentially get. The tricky bit about these cashbacks is – they are in place to encourage you to spend more! Like honestly, why would credit card companies be so kind as to return you small amounts of cash on your expenditures?
Not unless they were earning more of your money than they are giving back to you. We live in a free world, but it’s hard to think these corporations genuinely act on the consumers’ best interests.
Another very attractive option these days are the airmiles credit cards. I’ve been tempted but remember to always read the fine print.
Cashbacks and free airmiles are great, but it always requires that you spend a certain amount of money. If you easily hit those amounts each month or year, then those cards can be great options for you to look into maximising your expenditures.
Personally I’m not a huge spender, probably never will be and I don’t see the point in spending more than is necessary just to qualify for cashbacks or airmiles. My debit card works just fine.
Pretend you make less than you do
Whenever you get a pay rise or a bonus – what’s the first thing you think of?
“Yay! I can save more now!” OR “Yay! I have more to spend!” ?
Most of us fall in the latter category. To get around this, instead of thinking you have $500 (for example) more to spend on clothes each month, think about how you can save or invest that extra cash.
I do this by simply increasing the % of my pay that i’m putting in my savings account and increasing my monthly ETF investment contribution.
The amount in my spending account remains the same as before the increase. It’s a way of tricking my brain into thinking I’ve not gotten a pay increase.
Avoid lifestyle creep
Lifestyle creep is basically about increasing your standard of living in order to match your increased income. So you start splurging on bags, eating out at restaurants all the time. Hey, I now earn x dollars so I should start acting like I do!
No, you actually don’t.
As an interviewee mentioned in the article, his secret to great wealth was to have the “Same house, same spouse, same car.”
There’s a lot of wisdom in these words. No matter how rich you suddenly become, you do not have to supersize your lifestyle and change your standard of living just to keep up with external pressures.
Don’t buy things you don’t need or can’t afford
In the book, The Millionaire Next Door, the authors found that these millionaires are generally very frugal. They purchased things within their means, didn’t spend money they didn’t have and used cash for their transactions.
Another key behavioural trait they shared – they were willing to delay instant gratification. Meaning, if they couldn’t afford something, they saved up or waited til they had the means to do so. putting off what you want today so that you can have something to fall back on in the future.
These millionaires also avoided impulse buys – especially sales items. We are all more or less guilty of this. I’ve bought clothes, soap, shoes and just random bits and bobs during sales periods that I never needed or even really liked.
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Want to start cultivating better financial habits? Check out the other parts in this series: