What's Your Sat-Nav? - WEALTH EDITION
This week, guest poster Elliott Starr dives into how to create habits and systems that have enabled him to hit his goals in the easiest and least painful way possible. In his first post last week, he applied this to health. THIS week, he tellS us how he has applied this to wealth. Enjoy!
Wouldn’t it be lovely if we could all instantly create more wealth in our lives?
But we live in a little thing called reality. I know that instantly increasing wealth is not possible for the majority of people.
Things like pay-rises, promotions take time, effort and hard work.
Just like building your body. Building your career requires you to put in the reps. And just like in the body, nothing healthy happens quickly.
So, two simple strategies here. One to increase wealth by increasing incomings. One to increase wealth by decreasing outgoings.
Increasing Incomings
I have been starting to build passive income (i.e. a system).
Before Christmas, I wrote two very-short books and put them on Amazon.You can buy them for less than the price of a London cup of coffee. I wrote them for fun and to add some value to the world.
I doubt they’re going to be best-sellers. But it’s nice seeing the odd couple of pounds come into my account now and again. (Literally, a couple after Amazon take their share).
What could you write about? What are you passionate about?
If you’re passionate about something, you probably know a lot about it. You’d probably enjoy creating content about it.
It doesn’t have to be words. Love design? Create a low-maintenance T-shirt drop-shipping business using your designs.
The main thing is, make sure it’s adding value to the world and keep it low maintenance.
Decreasing outgoings
MORE OF THE 80/20
I asked myself the following question:
“What 20% of things I spend my money on actually create 80% of my happiness?”
For me, this brought a few things to light:
- Enjoying lovely food at the weekend with my partner brings me so much joy and happiness. But this is often compromised by me spending too much money during the week.
- Going for drinks after work with colleagues was costing me way too much money. I work in London, where it’s no longer a surprise to pay £6 for a pint.
The average “few drinks after work”costs me around £20 (£26 when I count the food I inevitably buy on the way home) and results in:
- High probability I slip up on my diet
- A hot, stuffy and uncomfortable journey home
- A bad night’s sleep
- Feeling exceptionally groggy and struggling to get out of bed the following morning
- An excruciatingly difficult workout the next morning
- Rarely any chores achieved while I'm sipping my coffee.
(I’m usually curled up by a radiator, cradling my coffee and crying).
This dominoes into my weekend. It results in me having to do my workouts and my chores at the weekend when, really, I want to be spending time with my partner.
So, back to Binary rule number 2 - "Sunday to Thursday, I don't drink."
Not only helps with my health goals but also with my financial goals and my relationship goals.
So, run an 80/20 on spending vs. happiness. Next…
AUTOMATE YOUR BILLS
Move every single one of your bills (rent, mortgage, car repayments) to direct debit. No compromises. Every single one of them goes on Direct Debit.
Have the direct debits go out the same day you get paid. Not the day after. It’s too tempting to spend money you don’t have.
(This, of course, is a systemthat eliminates choice and by default, the possibility for bad choices.)
SOME MORE 80/20
I asked:
“Which of my spending is completely unnecessary? Which of my spending is literally buying nothing?”
It resulted in the following:
Stop spreading things like car insurance out in monthly payments. You pay astronomical percentages of APR. Buy up front as much as possible.
Scrutinize things like phone contracts. For example:
- I desperately needed a new phone.
- I looked at getting the phone I wanted on contract.
- I looked at the total price of the contract. (The cost of 24 payments made over 2-years plus the initial, up-front cost).
- From this cost, I subtracted the cost of the phone if I bought it outright.
- I divided what was left by 24.
The result? Getting the phone on contract results in me paying 2.5 times what I need to, for my texts, minutes and data. (Compared to sim only).
Two hundred and fifty percent!
Suffice to say, I took the hit, bought the phone, sacrificed elsewhere and took out a sim-only plan to go with it. Next…
INTRODUCING THE “SURE-FIRE EXPENSE SYSTEM”
(Catchy title, right?).
I can’t take credit for this as it was inspired by my good friend Nicki Kythreotis.
It is based on sure-fire expenses in life that are you are guaranteed to incur.
The basic principle? Sit and brainstorm every possible sure-fire expense you will incur each year. (Based on your lifestyle).
Then work out what the total cost of each expense is per year. Then divide that amount by 12. This shows you how much you need to save each month to cover that expense.
For example, if your car tax is £140 a year. That’s £11.66 a month. Make it £12 to be safe to and simple.
So, what action do you need to take?
- Exhaustively list every single sure-fire expense
- Go to a bank
- Open a current account
- Then open individual savings accounts for every sure-fire expense
This is the only function these accounts perform.
(As a side note, Nationwide seems to be the least painful to do this with, as you can do it all online. I recommend their Flex current account and instant access saving account. But more specifically, their app. Which makes this whole process unbelievably easy.)
- Set the savings accounts up
- Then set up individual standing orders for every sure-fire expense
- These standing orders go from the current account to the relevant savings account
Say one of your sure-fire expense accounts is: “Christmas presents”and you have to contribute £40 a month to it.
- Set up a monthly standing order for £40
- This goes from the (newly opened) current account
- It goes into the “Christmas presents”saving account.
You repeat this process for every single sure-fire expense savings account. You set all of this to happen the day after you are paid each monthby your employer.
You then set up a final standing order for the day that you actually get paid.
- It goes from the bank account your employer pays your salary into
- It goes into your (newly opened) current account. (The one that feeds your sure-fire expense savings accounts).
- The amount has to cover the combined cost of your sure-fire expense monthly amounts.
So, if you add up all of your sure-fire expenses, then divide that number by 12, that’s the amount it needs to be.
And trust me, there are going to be far more than you first think. For example, let's say you own a car, here are a few:
- Car finance/ repayment
- Fuel
- Car insurance
- Road tax
- M.O.T
- Minor service
- Major service
- Windscreen washer fluid
- Engine oil
- Engine coolant liquid
- Tyres
- Cleaning it or having it cleaned
- New windscreen wipers
- Emergency fund (parking tickets, dings, dents, and scratches)
(Some of these might be covered by Direct Debits. But I’m just painting a picture…)
And that’s just your car.
So, you’ve set everything up, and you've completed your first month of the ‘Sure-fire Expense System’… Sitting before you are 79 (just kidding. Or am I?) savings accounts, all flush with their relative amounts saved. What do you do now?
That’s the great thing. You don’t have to do a single thing.The system is now fully automated. It requires zero effort or willpower.
Whatever the sure-fire expense, you’ve prepared for it. The money is reading and waiting.
But it does mean that when you need to buy X or renew Y, you can afford to.
It also means that:
- Once you’ve paid all of your bills via direct debit (on pay-day)
- And you’ve paid the necessary lump-sum into your Sure-fire Expense System current account (on pay-day)
That the amount you have left is entirely yours to live on. And you know that about 25% of that is what you have to enjoy each week.
It's is a great feeling.
I have a sure-fire expense account for clothes. A few weeks ago, I bought a pair of jeans. I cannot describe how good it felt to buy them knowing it would have absolutely zero effect on my financial health.
At that moment, I felt truly wealthy, and it was just the result of a simple, mindless system.
Those Are My Sat-Navs
What are yours? How can you program them for the goals in your own life?
It’s not easy. I’m not claiming it is. It takes thinking about.
It takes effort to set up.
But even Google Maps requires you to enter an address.
Let’s Wrap This Up
Program your sat-nav using the following techniques:
- Set the game up, so it's easy to win.Remove all friction. Remove all obstacles. Lay down some plastic sheets. Add water. Add washing up liquid and slide all the way to your goal
- Run an 80/20 analysis. What 20% of inputs will create 80% of outputs? Positive and negative
- Set binary rules. E.g., "Do this. Don’t do this. Do this at these exact times. Don’t do this at these exact times.”
- Set If, then rules. E.g., “If you do X, you have to do Y. If you do X, you don’t have to do Y. If you don’t do X, you have to do Y.”
- Program habits. Cue, routine, reward. Modify bad ones. Create good ones
- Set systems that eliminate choiceand by default, the possibility for bad choices
- Set incentives. Give yourself prizes for making progres
- Set stakes that make not achieving your goal painful. (Pain/ pleasure, folks)
- Strategically use the rejuvenating power of stopping off
Follow these principles and you will be building your wealth in no time. You might not become an overnight millionaire, but keep this up and you dramatically increase your chances!
YOUR TURN: Leave a comment and tell us one action you are going to take to systematise your wealth.
ABOUT THE AUTHOR
Elliott Starr
Elliott is a creative advertising and marketing consultant, currently working at Drum.
He likes to make things and solve problems. He particularly likes to makes things that solve problems.
In his spare time, Elliott prioritises mentoring, Gymnastic Strength Training and obstacle course racing.