Episode 16

[Financial] New Year’s Resolutions: how to get ahead in your finances and be in a better position this time next year

Welcome to the New Financial year – looking back on the year, are you in a better or worse financial position than you were this time last year? Today’s episode we’ll be looking at how to be in a better financial position this time next year.

  1. Ways to get ahead in your finances
  2. The compounding effects of the little changes in behaviour and things you do everyday

 

What does a “better position” actually look like?

  1. In general terms – there are categories we can look at
    1. Build wealth – start investing
    2. Reduce tax
    3. Save money
    4. Increase income – Salary, investments
  2. Hard to generalise with these broad goals: That is where having predefined, specific goals comes in

 

What are your goals? “New Year’s Resolutions”

  1. Not many people stick to new year goals – Why?
    1. There can be too many. Normally people think this is good, to have a lot of goals
    2. But if these are similar to last year and you didn’t make it, why might that be?
    3. Hard to go from 0 to 100 overnight – Inertia – something continues in its existing state (rest or in motion) unless it is changed by external force
      • Hard to start a train and get it to top speed – takes a while. This is similar to investment or a personal finance strategy
    4. Example: say you have 10 goals – all new things that you’re trying to implement, maybe its investing in shares, reducing tax, buying a property, generating $50k of income in 5 years from investments, etc. …but, where do you start? And how?
    5. Information overload sets in and you go back to your old ways pretty quickly – It is safe and easy

 

Finding “motivation” is rubbish

  1. What people search for is a moment of inspiration to get the ball rolling
  2. It never comes – Why?
    • Motivation comes from a positive feedback loop – do something good, dopamine is released in the brain, you then want to do this again
    • Think about it, you don’t need to find motivation to indulge in anything
    • Part of the problem is that bad things compound as well

 

What you can do to get ahead now

  1. How do you motivate yourself to invest?
  2. Motivation is a lie, there will always be something better to spend your money on than your future security and financial independence.
  3. How to start?
  4. Sometimes there can be too many things to change at once
  5. Start small – pick one thing
    • What is ONE financial behaviour you would change?

 

Small action = dopamine = larger actions.

  1. The best way to get over slumps – a little momentum to start and it takes off.
  2. Once you get enough of a craving for the feeling of saving/investing, it is hard to stop
  3. Remember: Almost impossible to go from 0 to 100 – like the train, it starts off slowly, but then don’t get in its way once it’s going.

 

My personal habits:

  1. Wanted to share the things I have done to help for 14 years now – it didn’t happen overnight
  2. Chipped away – little things over time – Easy and sustainable way
  3. From about age 16 I wanted to be able to save $10,000 p.a. to invest
    • Living at home and working at a pizza shop while at school this was fairly easy
      • Minimum wage of $14 per hour at 14 hours a week
    • Went to uni – it got a bit harder to save that much
      • Studying engineering at the time before changing to Economics and Commerce, playing rugby with UQ – 3 training sessions a week and most of the day Saturdays – Lost time working, plus weekly physio visits
      • Tearing my knee for the 3rd time – Gave it up, started working more, labouring as well
    • When working: was earning much more full time in financial services – I upped the saving target to $25,000.
  4. I needed to change some habits to increase this.
    • Preparing lunches for work – $20 for meat, $3 sauerkraut, $3 on feta, $5 on avo, olives and nuts
      • $30 per week, versus $75 ($15 min per day) – Save $45 per week
      • How it got there? Took a plan
        • What was something I could eat – every day?
        • Would it save money and time?
    • Total time – 2 hours to prepare per week – But I eat at my desk, 30 mins a day for lunch = 3.5 hours per week
  5. Salary Sacrifice into super – $100 per week since 2011
    • Save for long term – Invest $85 instead of $65 per week after tax.
  6. Hitting Saving targets each year but reinvesting the income
    • That grew over the years – compounding returns when income reinvested
    • That is the process to improvement – one small thing at a time.

 

Financial habits are built through the positive feedback of cue, action, reward.

  1. These decisions years ago have improved my position now.
  2. That is the relationship with good habits – Keep improving slowly over time
  3. Pareto distribution – 80/20 rule.
    • 20% who have 80%, they have been able to grow good habits, compounding effects
    • It is as simple as investing and waiting – $20k today would be $80k in 14 years at 10%

 

The past determines your present – all actions

Your future is determined by your actions from now up until that point

 

  1. You can negotiate with your long term, or “future-self”
    • Bank hostage negotiation – But it is all inside your head– The desired outcome is hostages survive, bad guys give up and that you don’t lose money
      • You don’t want to have the future outcome with no funds in the vault and chalk outlines on the floor
      • Always something trying to steal your money – Just don’t give them the helicopter to get away
    • But if you hit the future and aren’t where you want to be, where does that leave you?
      • That is where further self-doubt kicks in – unrealised expectations

 

What is one thing that you can do to better the future self? Starting sooner rather than later – There wont be much joy in starting, but ‘all good things comes to those who wait’ – means that if you wait it out and just start at one thing, keep at it, you will start getting the motivation to keep going, and increase speed.

 

Time can be broken down into the following:

  1. Past – What has gone on – All of your life events to this point
    • This dictates a few things – Behaviours and habits, and we all have habits that creep in over time
    • Most people may have been financially secure if not for making bad choice in the past
  2. Present – The now – What are you doing?
    • Most peoples’ financial security comes from employment income
    • What happens if you were to lose this today? Is there enough to survive?
  3. Future – This is where goals come in – What you want to achieve needs to be defined
    • Plans and Goals
    • With the one goal – breaking it down
      • SMART – or What, How and why?
    • Implement it and adjust along the way – Over time (30 – 90 days depending) it will become a habit… and then once this is a habit and takes no effort, implement the next goal on the list!

 

Thanks for listening everyone! I hope you all can make a small change today, that your future self will thank you for 🙂

Remember, feel free to ask any questions, or even how you can achieve financial goals!

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