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Wednesday, March 7, 2012

Be an underachiever

When we finally make that decision to begin something new, often we are keen to start immediately.  We are motivated, fired up and want to get stuck in.  There's always a lot to do.  This has happened in many areas of my life and can be as mundane a task as cleaning the house or as profound as starting a business. I can look at my messy house for weeks and then, BAM, I go on a rampage and spend an entire day cleaning bathrooms, the kitchen, laundry, floors, and then start washing walls and vacuuming spider webs off the ceiling.  A week later you can't even tell and the motivation to keep my house clean has evaporated once again.

I went through a period of being overweight when I was in my twenties and did the same thing.  Got motivated, spent hours each day exercising and eating nothing but stir-fry.  I used my six-month gym membership for a month and ultimately lapsed back into old habits.

With money....  well you can probably guess.  I learned sometime in my twenties that if you put away 10% of your earnings each pay, money starts to build up and compound interest makes it grow really big down the track.  You can use this money to invest and make a bundle, retire rich and retire early.  Wow huh?  just 10%?  Back then, that meant saving a dollar an hour, or about $30 a week.  But what if I saved $50 a week?  I'd get there even quicker right?  I put as much money away in savings as I could.  But then a bill would come in that I wasn't expecting and I had no other reserves so guess what, there goes my savings, or at least part of it.  That was ok.  I'd start saving again next week, but then another bill would come in.  Eventually that savings money would be completely depleted as was my motivation to save for investments.

I've know the 10% rule for about fifteen years now.  I tell other people how simple it is, yet it has taken me about that long to implement it consistently myself.  There are plenty of excuses.  One of which is that I have investment properties.  Surely paying the interest on them counts for more as the capital increases...doesn't it? And if I keep the 10% in my loan account instead of putting it in a separate account, I'll save the larger interest (which is tax deductible) instead of earning the smaller interest (which is taxed).

But I have realised that I don't need to compromise on one thing to be able to do another.  I can do all the things I want to do, if I don't try to do a complete job of everything.  In other words, do little bits at a time.  It is far easier to attack that mess in the kitchen if I make the decision that I'm only going to clear the benches for now.  I can get motivated to do a ten minute walk far easier than trying to jog for an hour.  I can get the washing folded if I'm just going to do ten minutes.  Even my new money management tutoring business is getting going because I'm not trying to spend all day, every day on it.  I figure I can set a goal of writing one blog post per week and achieve that comfortably.  If I spend fifteen minutes a day on other aspects of my business, that is also achievable.

As for the 10% rule....  I have been putting that away in a separate bank account for a couple of years now.  Each time it gets to $1000 I buy some shares.  And guess what?  I still manage to clear my credit card each month, and pay the interest on my mortgages.  I even have spare money for when opportunities come up to holiday with my family or the unexpected expenses such as fixing my car after a kangaroo decided to wipe out all the panels on the left side and take out my tail lights.

The trick is to do small things often.  Stay motivated to keep on top of your finances by reading from a money book five minutes a day.  Stay on top of your health by doing that 10 mins.  Stay on top of the house cleaning by spending 5 mins tidying up before bed.  Put a little bit away into a savings account, pay a little bit extra off that credit card this month, put a little away into an emergency fund.  Do not enough that you'd notice it now.  Compounding suggests that in time, your house will always be clean, you'll enjoy excellent health and your money will be plentiful.  

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