FP Article 19

The Psychological Strengths of a Saver

by Rajen Devadason

Rudyard Kipling

I realise that no one knows your precise financial situation as well as you do. But regardless of whether you are swimming in money or drowning in debt or merely getting by, the way to fiscal - meaning budgetary - health is to make a personal commitment to yourself to become a disciplined saver of money. Doing so will have far-reaching positive effects upon your life and that of your family.
 

In this day and age, it is becoming ever harder to naturally drift into a life of fiscal responsibility and healthy saving. The clarion calls of advertisers assail us from every nook and crevice, tempting us with ever more attractive ways of separating us - permanently - from our money.

You probably don't need me to tell you what an appropriate saving level might be. I believe deep down inside you already know what it should be. But to help you bring that level of comprehension up to the surface of your consciousness, I'd like to invite you to carry out a brief 5-step exercise:

1. Think of how many years you have been working. For instance, if you're 36 right now and only started work after earning a couple of degrees at university, you may have spent 12 years in the workforce.

2. Figure out how much you've set aside from all those years of working. Perhaps you've earned $500,000 in that period, but only have $25,000 in savings and investments to show for it.

3. Calculate how much, on average, you've set aside each year of your working life to date. In this example, it works out to only a little bit over $2,000 a year.

4. Now ask yourself what will happen in the future if you continue spending and saving your money in the same ratio. You might like to print out this article and write down your personal thoughts here:

5. Finally, bear in mind that most of us need to wisely use the money that flows into our lives to do three things:

     a. Pay for our current lifestyle;

     b. Pay for our past excesses that still linger as consumer debts; and

     c. Pay for our future expenses, particularly during retirement when we won't earn an active income.

My personal definition of a miser is someone who hoards perhaps 75% or more of his income, never giving himself permission to live a decent life now.

Similarly, my definition of a wastrel is someone who doesn't bother to save even 10% of her net income. Most such individuals eventually end up becoming deadbeats (meaning they aren't able to pay their debts) or leeches (meaning they endlessly rely on others to take care of them).

In my day-to-day work as a Malaysian Securities Commission-licensed financial planner who specialises in shocking people out of their retirement funding complacency, I regularly work with consulting clients to develop a long-term programme to build up from whatever their savings level is right now toward what I deem to be a healthy 40% to 50% of net income.

That may strike you as being unrealistically high. Then set your own target savings level.

My rationale - for myself and for my elite consulting clients - in setting a 40% to 50% net savings rate - is that almost all of us will one day face the day when our active income dries up!

Those who will thrive after that point is reached will be the ones who have prudently and wisely created permanent passive income streams out of a portion of their temporary active income streams, like salaries and business profits.

The best way to create such permanent future streams of cash into your life is to invest wisely. But before there can be money to invest wisely, there must be money saved sagely!

Rudyard Kipling, the English novelist with the rapier wit, once pointed out:

"Savings represent much more than mere money value. They are the proof that the saver is worth something in himself. Any fool can waste; any fool can muddle; but it takes something more of a man to save and the more he saves the more of a man he makes of himself. Waste and extravagance unsettle a man’s mind for every crisis; thrift, which means some form of self-restraint, steadies it.”

It is your life and it is your money. Therefore, you may choose to accept Kipling's point of view or reject it. But do remember: In all of life, important choices lead to consequences.

I, therefore, made the decision a long time ago to accept Kipling's point of view in this matter.

In closing, if you'd like additional guidance on this subject, you're welcome to read my article How To Start Saving Money. (If you happen to be a Malaysian who is looking for professional help in the area of personal finance, I suggest you also check out the CFP Directory of the Financial Planning Association of Malaysia. More specifically, if you're a Malaysian who is between 30 and 45, is very, very, very serious about this subject, and if you want to learn more about my consulting services, you may do so here.)

© Rajen Devadason