Ask The £100k Questions

After months of overspending, you finally decide to spend less. You cancel Netflix. And your gym membership. You walk to work to save money on the tube. You pick up a cheaper meal deal to save 29p a day. You avoid socialising to save money. You sit in the dark to save electricity. And you brush your teeth once a week to save on toothpaste.

As you can see, I’m not a fan of this attitude. At the end of the month, you’ve saved a grand total of… not very much more. But you’ve made your life significantly less fun. It even sounds tiring. And unhealthy.

Some people, of course, don’t earn enough to live. But most do. However, they focus more on £10 questions than on the £100k ones.

Who wants to spend time worrying about small decisions if they don’t have to? No-one! Ah – you might say – ‘The pennies make the pounds,’ as your grandparents taught you. True. However, wouldn’t you rather have the same impact with less sacrifice?

******************************

Humans suffer from decision fatigue. This is the idea that after making many decisions, your ability to make more and more decisions over the course of a day becomes worse. In other words, each extra sacrifice becomes harder. That’s why we tend to binge eat at night rather than at lunch. It’s why top executives make their most important decisions in the morning. And it explains the phrase ‘sleep on it’. Late-night wisdom is usually wrong.

It’s not just a daily thing. We also suffer from decision fatigue over longer periods. That’s why we’re unlikely to have the discipline to stick to an iron budget where we say ‘no’ to everything fun. At some point in the journey, we’ll become fed up.

We feel we’re sacrificing a lot, but don’t see the immediate benefits. As such, we have a bad day and decide to relapse on the budget, spending far more than we did in the first place. This is why intentional spending is important.

What if I told you that you could use less mental energy to achieve better results? I’d hope you’d listen. The solution? Don’t ask the £1 questions – ask the £100k ones. The ones that can really move the needle.

Forget skipping the coffee. If you haven’t paid down your credit card debt, sorted your housing, and started to invest, then there are more important places to start.

Here are four thoughts:

1. Time is Money

If it takes an extra 15 minutes to walk to and from the shop selling a 29p cheaper lunch deal, it’s not worth it. Sure, you save 29p. But you waste a quarter of an hour. If you do that four times a week, that’s an hour of your time spent. For what benefit? A whole £1.16 of extra savings. This is crazy!

Time and money are connected. When you go to work, you trade your time for money. And I bet you get paid more than £1.16/hour. So if you’re trading your time for a wage of, let’s say, £20/hour, why would you trade that money back at a rate of £1.16/hour? It’s illogical.

2. Invest, Invest, Invest

If you’re still not convinced, think about it this way. Imagine you have £50,000 in the bank. The simple decision to move from a 0% interest current account to a 3% account will generate you an extra £1,500/year. That’s £125/month.

And if you invested that £50,000 into the stock market, an average, long-term return of 7%/year would generate an extra £3,500/year. That’s £292/month.

And that’s with £50,000 saved. Imagine later in life when you have £250,000 of savings. The power of investing will generate an extra £1,460/month. That impact will dwarf the £10/month saving from cancelling your Spotify or Netflix. Over time, it will be worth £100k and more.

3. You can’t switch on a personality

Some people plan on saving as much as possible for years and years. No holidays, no socialising, no fun. Their view is that one day they’ll hit a number in the bank account which means they can forget the rules and live happily ever after. Unfortunately, that doesn’t work.

Firstly, you can’t turn on the socialising switch if you’ve been a miser all your life. No-one will want to hang out with you.

Secondly, you’ll have a ‘constraint’ mindset, rather than an ‘abundance’ mindset. You’ll never fully enjoy what you have, because you’ll always think about saving more. We are what we continually do, and it’s hard to shake off a mindset of constraint. There needs to be a balance between living for today and living for tomorrow.

4. Upper and lower limits

There’s no upper limit to earnings. But there is a lower limit to spending. You need the basics, like food, clothes and shelter. And the feeling of sacrifice gets greater and greater as you get closer to the lower spending limit. In other words, you’re becoming ever more dissatisfied as you make smaller and smaller gains.

Earning more might seem harder, but putting your efforts into one pay rise is more significant. It’s also less stressful. Salaries have no upper limit, and a raise can really change your life. It’s another £100k question – how can I earn more? Over a working lifetime, it will be worth hundreds of thousands of pounds.

On the other hand, focusing on constraint can only get you so far.

******************************

Look at your own financial decisions. Are you asking the 29p questions, or the £100,000 ones? What can you do today to focus more on what matters?