A friend of mine who worked in real estate for many years once told me,’ there are two types of people who buy property: users and improvers.’ In my experience, there are also two types of people when it comes to financial services: savers and spenders.
Spenders love to spend money: they live the high life; rarely save any of their pay cheque and live for the moment. “Let’s worry about tomorrow when it comes,” is their motto. They are the majority.
Savers don’t spend money unless they have to: their focus is long term: they rarely have credit card debt or bank loans and there is no bling in their lives. They are far more likely to achieve their financial goals than spenders and as a consequence have far more stable financial lives.
Occasionally, I meet spenders who recognise their profligate ways and want to change. This recognition is the first step to reform but it is very easy for them to fall back into their old ways. Because once a spender, always a spender however they can become ‘reformed’ spenders. So what can be done to help them keep on the straight and narrow?
One way can be seen in the structure of most regular savings plans offered by life assurance companies in U.A.E. The financial consequences of stopping these plans in the early years are so penal that the saver has to keep paying once the plan has started or suffer significant financial loss. Eventually the regular investment becomes habit. Once it becomes a habit the saver is almost there. However, even with heavy financial penalties for stopping these plans it does happen quite often. What then can be done to encourage the saver to keep contributing to their future even in hard times, as a true saver would?
In my experience, the answer is not something we are taught in financial planning school. The true saver will have a very clear vision of their goal. They will have spent a long time thinking about it and what it will be like when it is achieved. As an example, for retirement the saver will know: what country and type of house they will live in; the colour of the walls and kitchen fittings etc; what it will feel like when they first walk into their new home; how it will feel to wake up in the morning with the sun streaming through the window; what they will do – new hobbies or pastimes they will take up and more.
As an additional personal commitment to this vision they write these feelings down and keep it close by to remind them when times are tough. Reformed spenders should take this list with them when they go to the mall and read it before they make an expensive impulse purchase.
The true saver will have calculated exactly how much cash they will need to achieve their goal. They will know how much of every pay cheque and bonus they must save. They will also have check points along the way to make sure they are on target. These check points may be every six months or annually but larger strategic reviews will probably occur every five years. But without the vision to refer back to these figures just become meaningless and commitment is lost. So before saving, you should have a very clear objective in mind. This can be very personal or one you share but your chances of achieving it are far greater if it is shared.
I hope the above is useful, let me know if you have any questions.