“Money in reach is money that you are likely to spend.”
I apply a very simple principle to the above that has served me well: If I want to spend money on holidays, gadgets, a night out, or any other daily expenses, it has to be paid from my monthly income. Money in other accounts is untouchable: it is my crew of financial sailors that works hard to earn more money. Making it available for daily life’s spending would be like killing off my workforce and reducing its productivity.
While living life must not be neglected, my crew has to become bigger for it to multiply faster. It can only grow bigger by supplying it with additional members. But as humans we are flawed in that the money in reach is translated by our brain into spending power. It thus calls for “hiding” the money from the parts of your brain that would rather spend it on a new purchase than put it to work for you.
If your monthly take home salary is $/€/£ 3,000, your brain will work with that sum. It will assume it has that amount to manage life for the next four weeks. At the same time, your crew needs a constant supply of additional sailors to speed up your galleon of wealth. So the only way of satisfying both are by tricking your brain into believing that there is less money available for daily life and consequently strengthening your crew.
Imagine now your brain only caught wind of $/€/£ 2,500 instead of your full salary: given our great flexibility and adaptability as humans, it would work out the following four weeks’ spending based on that amount. Your spending will unconsciously be based on your available funds and reducing them will simply lead to greater resourcefulness or a shift in priorities.
But there is another flaw us humans have to cope with. The flaw is due not to a lack of intelligence, but because of our intellectual capacities. Yes, that is right; our intelligence permits us to rationalize why upping our spending might be necessary. Whether it is the long awaited new pair of shoes or the day at the theme park, we will allocate all financial resources at our disposal. This is why we have to trick our brains into believing that our budget is lower than our finances would realistically allow. The easiest way to do so is by setting up an automatic transfer of the $/€/£ 500 (the difference between the actual monthly income and the set budget) into a safe account that protects the money from the evil spending brain and only leaving a specific sum
One of the best features of an immediate money transfer of a share of your paycheck, dividend, or interest payment the moment it has arrived in your account is that you will not even notice the wired amount. But automate the process. If not, your memory will recall that an extra € 250 available. Sitting in front of your computer on the 1st of each month and clicking the transfer button will only work if you are extremely disciplined. It lies in our human nature that we occasionally falter. An automated transfer will save you from this human default, transforming your money into a distant love affair you have briefly met while on holiday: “Out of sight, out of mind.” So make sure your monthly income carries a share of distant love and let your wealth grow repeatedly. The brief love will pay you back manifold some years later.
Similarly, when you receive a financial windfall, immediately transfer into your savings account. The briefer the period it appears available to your spending, the less you think of it as money to you. The money belongs in the savings account where it should to remain. Refrain from transferring money back into your current or debit account. This can too easily become a bad habit. Once the money is in the savings account, let it work. Think of it as your increasingly stronger workforce. Every month your financial crew gets bigger, works harder, and brings in more money for you.
After a few months, transferring the money to see your savings grow will become part of you. After a relatively short time, transferring the money directly into a savings account will become something you feel that you have always done. And while the automation becomes increasingly engraved in your life pattern, the automated steady monthly savings speed up your galleon of wealth with each additional month. When you miss a transfer, something will not feel right and efforts are made to rectify the situation. That is the beauty of the human mind: it dislikes failing to conform to its own belief system.
This is a very simple trick to easily build substantial wealth. Enjoy the awesomeness that automated wealth building brings to simplifyng your life.