My brothers and I are lucky. We struck gold growing up. Our parents are incredibly hard-working and loving.
Every year we go on a family holiday. An island, one-hour boat-ride from our home. The boat used to take two hours. It's faster now.
We'd see people on the beach with jet ski’s. They were so fast. The people riding them were always hot. We wanted to be hot.
One year, we saved our money and bought a little inflatable boat. Four horsepower.
Oh yeah! Captains of our own ship!
Four horses weren’t enough. It didn't get the adrenaline pumping.
The boat got stolen 10-days after we got it, right off of the beach. We didn't care. It sucked anyway.
Each year we would try to convince our parents to buy a jet ski for the next trip. Our family wasn't poor but we weren't in jet ski purchasing territory.
When people weren't looking, we'd sit on their jet ski’s and imagine what it would be like to have one. So cool.
"We'll get one someday."
Reassuring each other as if owning a jet ski was our sole purpose in life.
I graduated university at the end of 2015. I didn't drink or party. All I did was workout with friends, study, hang out with my girlfriend and cash fat stacks from my part-time job.
I had a good amount of savings. Not jet ski savings but enough not to worry about paying extra for guacamole.
Our family holiday was coming up not long after my graduation ceremony.
Thinking of the holiday awakened a hibernating desire in the archives of my mind.
“This was the year.” I told myself.
I convinced my brother to chip in some money. It wasn't hard. Both of us nearly covered the entire cost.
"Are you sure?" Mum asked for the forty-sixth time.
"It's a graduation present." I was convincing myself more and more. Plus, this argument was easy to sell to rest of society.
I received my graduation papers, a rubber stamped certificate saying I'd managed not to fail. I wasn't interested. I was too busy thinking about the jet ski. We were picking it up in a few days.
I had cash in the bank but decided to use three different credit cards to get the points.
The dealership didn't care how I paid. As long as the money came in, they were happy.
"Use as many cards as you like."
All the frequent flier miles!
The 2015 215 horsepower model was sold out. All that was left were the 130 horsepower models. What were we supposed to do with 85 less horsepower?
My brother and I were debating over which one to get. We wanted the extra horsepower but wanted a jet ski now.
The owner walked in.
"I just got off the phone to the Seadoo depot, we're getting 2016 models at the end of next week. If you can wait you can get the new model for the same price."
We'd waited for a collective 38-years, another week wouldn't hurt.
Slightly delayed gratification meant 85 more horses. No brainer.
I spent the next week sending photos of the new model to my friends. They were excited. I was finally going to one of those hot people riding a jet ski.
Picking it up felt like a lie.
Buying an unnecessary item on credit feels like sleeping with the wrong girl. On the surface, it's sunshine and rainbows but underneath, emptiness. There’s no condom for the soul.
The more bills tied to something, the less you want it. Jet ski’s have more costs attached to them than horsepower.
We believed this machine would make us feel complete. If only we had that jet ski to take on our holiday, the missing puzzle piece.
Taking it on the holiday for the first time was a dream. The silence of emptiness was broken by the sound of 215 horses kicking along the bay.
We were hot.
Coming home meant the ski wouldn't see the water for a while. It sat idle under the front of the house. My bank accounts weren’t idle.
No so hot.
I started finding ways to pay off my accounts quicker. 21% interest was a great incentive.
I turned to finance books. I Will Teach You To Be Rich by Ramit Sethi. It sounded like a scam. But I figured a $10 scam is not as bad as the $20,000 one I'd just gotten away with.
I dumped all of my savings onto my credit cards. Earning 3% interested in a savings account was no match for 21% interest on my cards.
Still $4,00 in debt.
I diverted all of my pay to go straight to the cards. I would still use the cards day to day but the majority of my pay would be used to pay them off.
A Google Sheets document with amounts owing and when the monthly bill was due helped me know how much and when to pay off each card.
I sold my iPad to help pay off some more. The biggest card went first. Then the two smaller ones.
My balances were at zero after three months of consistent repayments. Paying it off fast meant minimal interest.
After purchasing the ski, I wrote one of my first articles, A Jet Ski Won't Make You Happy.
All those years staying faithful to the capitalist religion, believing more stuff, in our case a 215hp watercraft, was the key to fulfilment. I was wrong.
I have one of the most luxurious items anyone can own. I don't take it out on my own. It's a social tool.
Seeing the face of others when they ride it for the first time or when they fall off the tube makes it worth it.
Buying Bumblebee (yeah, we named it) is what kick started my journey into personal finance.
1. Which one first?
Imagine two buildings, each 100 floors high and both are on fire.
Building A is burning at 20 floors per minute and building B is burning at 3 floors per minute.
Your goal is to save as many floors as possible, which fire do you put out first?
Easy, Building A.
The same goes for debt versus savings. If your savings are earning you +3% p.a. but your debt is -20% p.a., which should you prioritise?
Combine these two. You're netting -17% p.a.
Take care of the debt with the higher interest rate before worrying about increasing your savings any further.
Vice versa, if an investment is returning an average of +8% p.a. and a debt is costing you -3% p.a., which should you focus on?
Internet banking is a blessing and curse. We have access to our funds anywhere and everywhere. You can now buy things with your face.
Not only is it easier to spend, it's easier to save.
I diverted all of my pay to go straight to paying off my cards. Once they were paid off, this trend didn't stop.
My hours weren't always the same each week, working part-time, but I had a rough idea of what would usually come in.
Knowing this, I diverted 20% of my pay to go straight to a separate account. 10% went to a share purchasing plan offered by my workplace. I lived off the 70% left.
I never had to worry whether I was saving enough. Bills got paid automatically using the 70% and I still had plenty of money for extra guacamole, outings and general crap.
You can manipulate the numbers how you want but the idea is to get to a state where you’re not worried about trying to save more.
Automate your transfers and let the computers do the hard work for you.
3. Pay Yourself First
Gold comes gladly and in increasing quantity to any man whosoever will put by not less than one-tenth of his earnings to create an estate for his future and that of his family.
— Law 1, The Five Laws of Gold
In other words, anyone who pays themselves with no less than one-tenth of their income will have an abundance of gold in the future.
I was paying myself with 30% of my income, 10% to the stock plan I was enrolled in and 20% to a savings account.
Use automation to pay yourself first.
If your employer enables you to separate your pay, dedicate a percentage to your future self. If your employer doesn't offer this, set up your bank account to automatically transfer an amount to another account the day after you get paid.
Ideally, you won’t look at the other account(s) you've set up to pay yourself for another 10+ years. The only valid circumstances are a medical emergency or for a larger investment (stocks, starting a business, buying a home, education).
4. Crystal Ball Savings
"I'm eating two-minute noodles this week."
"Car insurance was due."
Heard this before?
What concerns me is the knowledge of the car insurance, appearing at a known time in the future but acting as if it appeared out of thin air.
Take out your crystal ball. Instead of loading up on nutritionally poor noodles every couple of months, pretend you're your own fortune telling gypsy.
Want to go on a $3000 holiday in six-months time?
You'll need $500 per month or $125 per week to hit your target.
Apply this thinking to any future expense.
$1000 car insurance due in 12-months?
$85 per month will get you there.
Open a spreadsheet and list out all your future expenses. Figure out their daily/weekly/monthly/yearly costs. Use this break down to work out what kind of savings plan works best for you.
Automation is your best friend when it comes to crystal ball savings.
I bank with ING which means I can make up to nine sub-savings accounts. For me, that's too many. I have one sub-account where every week, enough to cover my crystal ball costs gets transferred, automatically. Every time one of these costs comes up, I pay for it using the sub-account.
Humans suck at predicting the future. But there will always be more bills. Don’t leave these things to chance.
Control what you can, accept what you can't.
Look into your crystal ball. Stop forcing yourself to eat nothing but refined carbohydrates every few months.
Humans also suck at measuring and remembering things.
We invented mathematics, writing and money to help our poor memories and computational abilities.
If you're reading this, you have access to one of the most powerful tools known to man.
Whether it's Excel or Google Sheets, it doesn't matter. I use Google Sheets since Office has become a clunky mess.
We're not after mind-blowing charts or predicting when the next asteroid will blow Earth into oblivion.
Keep it simple.
What expenses do you have?
What income do you have?
Do these balance?
That's all you need to worry about if you're trying to put your life together after buying a ludicrously fast water motorcycle. Or if you want to know a little bit more about what your money is doing.
Putting it on paper will help your primate brain understand where all your bananas are going.
You can use this knowledge decide whether it’s time to make banana cake or freeze some for smoothies in the summer.
6. Spend on What You Enjoy
Books are my current elixir. Walking into a bookstore gives me the feeling I had walking into a toy store when I was seven years old.
If I see a book I'm interested in, I buy it.
If you enjoy coffee, don't lose sleep over a loose $4 here and there.
Let your system take care of the heavy lifting and use the rest of your money for guilt-free indulgences.
After all, what exactly are you earning it for?
7. Make Money With Your Mind Not Your Time
I’ve learned a lot from Warren Buffett. His obsession with compound interest is contagious.
There are only a certain number of hours you can work each week before you start sacrificing your health for wealth.
Earning money with your time is a single-player game. You show up for a few hours, and hopefully, you get paid for a few hours. You might not even have to use your mind very much.
“Gold labours diligently and contentedly for the wise owner who finds for it profitable employment, multiplying even as the flocks of the field.”
— Law 2, The Five Laws of Gold
If you make your money work for you, you will subsequently make more money.
Before he was 30, Buffett barely had $1 million, by 50 he was pushing $100 million, now at 83, he's heading towards $100 billion.
Buffett makes money with his mind through intense study and timely investment decisions.
If Buffett purchases 20% ownership of Company Z, and Company Z has 100 people working for it. For each $1 of profit produced by every employee at Company Z, Buffett is entitled to 20c.
Expand this out to the hundreds of companies Buffett has invested in and add in the magic of compound interest, you can how he regularly is podium finisher among the richest in the world.
Other ways you can make money with your mind.
- Learn a skill other people will pay you for.
- Create a course using your knowledge and sell it online.
- Start a business with a competitive advantage.
- Buy items people are selling for cheap and sell them for more — my friend makes a living doing this with cars.
8. The Eighth Wonder of the World
Every overnight success you've ever heard of has likely been taking advantage of this wonder for the past 10-years.
It’s what happens when you make your previous efforts and investments help your future efforts.
When you first start learning guitar, you're unlikely on par with Hendrix.
After 10-years of improving your craft, you're probably still not as good as Hendrix but you're definitely better than me or 99% of the people reading this article.
Want to learn a new song?
You can probably do so in a few minutes what used to take you a couple of days.
What to refer to this phenomenon of progress begetting progress as?
Or what Buffett rightly refers to it as, The Eighth Wonder of the World.
The best thing? As the example above shows, compound interest doesn’t just apply to the world of finance.
All of the best things in life come from taking advantage of small compounding improvements over time. Use this superpower wisely.
9. No Limit
When were cavemen, if we used up all our food stocks, we'd die. If we tried to store too much food and didn’t eat any of it, we’d also die.
Thanks to refrigeration and the supermarket, this is no longer a problem for the majority of the world.
Now apply this thinking to your finances.
No matter how many times you split a pay cheque into different sub-savings accounts, it's still the same pay cheque.
What’s the fix?
I put this point last because it's the one I'm still trying to implement. The rest you are easy. You can have them underway in a day.
Earning more boils down to three categories.
- Devoting more time — work more hours. Great for your bank account, not so great for your health.
- Making your money work for you — use the value you’ve created in past to create more value in the future (see point 8).
- Upskilling yourself — learn something other people will pay you for.
Any method of money making can be traced back to one of these.
I prefer two and three. Number one will naturally occur when following either of these.
Don't stockpile so much of your hard earned catch you end up starving to death. Eat what you need, you can always go hunting if you want more.
There’s a limit to how much you can save. There’s no limit to what you can earn.
10. More Horsepower
I made the mistake of giving into short-term satisfaction. Now I'm trying to justify it by writing an article about personal finance.
My finances aren't perfect. I'm still looking at ways to increase my earnings.
I used to think getting rich was evil. I'd validate my jealously by thinking they must have done some bad things. Some people have done bad things to acquire their wealth. The truth is, getting rich means you've created immense value somewhere.
Everyone has a choice whether this value drives the universe towards heaven or hell.
It's good to learn from people who've made it. It's better to learn from people who've failed so you can swerve around that pothole.
I bought a jet ski to realise I don't need a jet ski.
I don't need any kind of material possession.
Does that mean I'm throwing away my iPhone tomorrow?
I'm not about to ditch everything I own and live full-time on a mountain chanting kumbaya’s enjoying all the shit I don't have.
I conquered that need.
Do I regret buying a jet ski?
Would I buy one again?
Take care of your finances. Don’t let them take care of you.
The 300hp model of my jet ski is out. I wonder what I can write to justify buying that for myself.
85 more horses baby!