Or my personal favourite: “Spend less than you earn!”
Ohhhhh man. One of the reasons why I stopped reading personal finance books is because they all offer some version of this lame advice. They’ll tell you to cut back on
lattes avocado toast, buy toothpaste in bulk, and generally put on a sackcloth and live like a homeless person so you can retire in 20 years.
But nobody ever talks about how it feels when it’s impossible to save up for something we REALLY want.
Here’s an example:
My $150,000 Dream
All my friends were starting their first jobs as consultants or investment bankers (this was 7 years ago, when it was still cool to be an investment banker). I’d stalk them jealously on Facebook, seeing their pictures of their apartments and parties in New York.
Me? I was bonded to a company and living with my parents. Don’t get me wrong – I was grateful for my scholarship – but I was suffering from a serious bout of FOMO and was determined to live in New York. It seems childish now, but back then it was a really big deal. I knew that jobs and visas would be tough to get, and so I hatched a plan:
I would spend my 4-year bond saving up for an MBA at Wharton. Then I would use that to find a job in New York.
The only problem: I had no idea how I was going to afford it. The cost of a Wharton MBA would set me back by $100,000 USD for the tuition alone. Add another $50K for living expenses (rent, food, etc), and I was looking at saving $3,125 USD per month – which was even more than my starting salary at that time.
Conventional personal advice wouldn’t work here, even if I saved 100% of my salary.
Besides, would it really be worth it? Was I really going to sacrifice the prime of my life for the sake of some fanciful pipe dream? And would I be comfortable with sacrificing ALL my savings – no retirement fund, no house downpayment, nothing?
This is a tough cookie. But I’ve been thinking about this a lot, and here are 3 mental models you can use when something seems impossible to save up for:
The Private Jet Fallacy
I call this the Private Jet Fallacy, after Tony Robbins’ example in Money: Master the Game. In the book, Tony talks about how it’s actually cheaper to rent someone’s private jet than to own one.
If one of your wildest dreams is to buy a private jet, it will set you back by about $65 million plus all the other costs like fuel, maintenance, crew, etc. However, if you simply charter someone else’s private jet, it will cost you just $5,000 per hour. If you use it for 200 hours a year (that’s 6 round trips to Europe, including refuelling stops), that will set you back by $1M. Which means you can effectively charter a private jet for 65 years and it will still be cheaper than owning one.
That’s an extreme example, but it does get you thinking: Can you actually get your dream for a fraction of the cost?
If your dream is to fly on First Class on Singapore Airlines, do you really need to pay the full fare or are there ways to travel hack your way into it?
If your dream is to drive a Ferrari, do you really need to OWN one, or would it be cheaper to rent it for a 6 months before you get bored of it?
Did I really want an MBA, or was it just a way for me to live and work in New York?
We are often so fixated on ONE version of our dream when there might be plenty of other ways to get there. It’s not about settling on a “lesser” dream, but about being honest about what we want and finding creative ways to get there.
Focus On Income, Not Savings
This is a pretty “duh” statement, but it’s worth reminding ourselves about.
The reason why I never blog about topics like “Top 10 Tips To Save Money At Restaurants” (ugh, kill me now) is because there’s a limit to how much we can save.
I’d much rather focus on increasing your INCOME, where the upside is virtually unlimited. If I had learned how to increase my income back in 2010, maybe saving $3K a month wouldn’t have been that big of a deal.
That’s why I blog about topics like career, presentation skills, social skills, automation, negotiation, and fitness, to support our ability to grow our income. Plus, it just makes for a much more interesting life than just hunting around for the best interest rate.
Some folks get mad about this. They say I should write more about money because I’m a “personal finance” blog. If that’s you, there are plenty of other blogs out there that talk about “5 Credit Cards That Will Help You Travel More This Year!”
For me, I prefer to make more of your dreams a reality by increasing your income. (And I totally get the irony, because this is a post about savings)
Just Start Anyway
Last of all, we can’t predict the future. ANYTHING can change in 5 years.
When I first started work, I started saving $500 a month even though it was much lower than the $3K I thought I needed. As time passed, a funny thing happened: I started losing interest in the MBA.
Still, I kept on saving. And after several years, I didn’t have as strong of a desire to live in New York anymore. Most of my friends had left (ironically, many of them came to Asia), and I was building a great life in Singapore. As my income increased, I slowly bumped up my savings. I met my wife, we got married, and I used the money I saved up to afford our wedding, house and renovation.
Many people get so overwhelmed that they don’t even start. If you’re saving up for something in 5 years, anything can happen between now and then.
But just start saving anyway, because you never know what could happen.
What Are You Saving Up For?
So I’m really curious to hear from you.
Do you have something that you REALLY want, but seems impossible to achieve right now? Are you thinking about travelling around the world, buying your dream house, or paying for an overseas Masters degree?
What are the biggest barriers you’re facing? What are you doing about it right now?
Let me know in the comments below.
- How to start with as little as $100 a month
- The proven strategy that beats 80% of professionals
- The specific investments to start with, and where to find them in Singapore