An English philosopher named once said "the great aim of education is not knowledge but action." We believe in educating the consumers with right concepts so that they can make financially savvy decisions on their own. And when it comes to education, there's nothing quite like learning through examples. Therefore, we sought to share success stories and examples of real people that can help inspire our readers to take actions and achieve their financial goal.
Below is the story of Spring Sun, the writer of a popular blog called Frugal in Singapore. She has an amazing story of growing up at the poverty line in the US, eventually moving to Singapore and achieving financial independence. While we have written a lot about optimizing financial instruments like rewards credit cards to maximise your benefits, she focuses on the other side of the coin, i.e. achieving financial freedom by controlling your expenditures and increasing savings. If you are looking for ways to achieve financial freedom, we believe you can learn how to create the right mindset when it comes to saving money.
How Spring Escaped Poverty
Most people know that education is a powerful and proven way to get out of poverty. But, what they don't realise is that it's easy to slip back into poverty, even with a high-paying job. Let me explain.
When I was growing up (in the US), my family lived just above the poverty line - which was enough to qualify me for free school lunches, but not enough to get food stamps. With my family living paycheque-to-paycheque, I felt like we were always on the precipice of financial ruin. I had a close-knit group of 4 childhood classmates; we all had the same socioeconomic status. Our plan was to study hard, get into a good university, graduate, and hopefully find a stable and lucrative career.
That was the plan. But, here's where my path differed.
1. Getting a Good Education
My friends all applied to top rated universities. For me, I realised that getting a solid education isn't perfectly correlated with the university's ranking or cost. It has more to do with whether you take full advantage of what the university has to offer. So, an institution known for partying or one that is so expensive that I'll spend more time working than studying wasn't worth it to me.
My decision on which university to attend boiled down to which one gave me the most funding in terms of grants and scholarships. I applied to over 30 scholarships and was rejected 26 times. That's 26 "no's". But that's life; you will hear "no" more than you will hear "yes." But, hearing "no" means you still tried, and you can learn from your failures to improve your chances next time. And as Wayne Gretzky said, "You miss 100% of the shots you don't take."
2. Keeping Your First Paycheque
The first paycheque I received was from an internship. I had earned enough from one single day of work to cover an entire month of rent (in California). It was thrilling and, for the first time, I felt a sense of financial security. I paid my rent and banked the rest of the cheque. No buying a new phone to celebrate, or treating myself to a nice 5-star meal. I banked the money and never looked at it again.
I imagine my classmates experienced the same exhilaration with their first paycheque. But, they spent it on new things. Every time we met up, they had fancy clothes, handbags, and jewellery, while I continued to wear second-hand clothes. They fell prey to lifestyle inflation.
3. Avoiding Lifestyle Inflation
I've written about how lifestyle inflation robs us far more than actual (monetary) inflation. And, how it causes us to stay on the hedonic treadmill—forever. Here's the hard truth about lifestyle inflation: once your basic needs are met, improving your lifestyle more will only bring you a fleeting jolt of joy. But, we as humans adjust very quickly and easily to our circumstances. That joy will soon feel "normal." We will no longer feel as joyful or happy about our upgrade in lifestyle once we adapt.
Loss aversion tells us that the pain of loss is roughly twice the joy of gain. This means moving downward in lifestyle feels much worse disproportionately compared to how improving your lifestyle makes you feel better. The real danger of climbing higher and higher is that eventually you could crash. So, I figured why set myself up for that crash if I'm already quite content at my current lifestyle level?
But human adaption can also work in our favour. If you force yourself to spend less and save more, any unhappiness you may experience is likely to fade. Consider this: if you're unhappy now, you're going to be unhappy spending less. But, the flipside is you'll also eventually be unhappy spending more. That's the interesting thing about human adaptation and the hedonic treadmill.
4. Saving is More Powerful Than Earning or Investing
These days, it's really hard to control how much you earn. You can change jobs, get a raise, or put in more hours to earn more. These are all quite difficult, as they depend on many factors which are not entirely under your control. Saving (not spending), on the other hand, is more within our control.
By tracking your spending (it's tedious, I know, but necessary) for at least two weeks, you can get a sense of where you can make cuts or substitutions. As Benjamin Franklin once said, even "small leaks sink big ships." Most people think if they make smart investments, they can spend to their heart's desires. But, consider how difficult it is to earn a consistent 10% rate of return. In contrast, saving $27 a day, or $200 a week, can help you accumulate an extra $10,000 of savings per year. That $10,000 is equivalent to investing $100,000 at a rate of return of 10%.
5. Gratification Through Your Relationships
A person doesn't have to be insolvent to feel poor. I've met my share of well-off individuals who have left a trail of broken relationships as a result of a focused and relentless pursuit of money or power. We are social creatures. We all need somebody. I feel rich not because of my net worth but mostly because I have a strong relationship with my husband.
I started Frugal in Singapore the year that my husband and I achieved a comfortable level of financial freedom. We were both in our 30s, and once we achieved our retirement goal, we both decided to pursue our passion careers. One of my passions was to write about the merits of frugality. The reason I didn't start writing earlier is because I didn't want to be a phony, writing about topics and goals that I myself had not yet achieved. The blog today remains (purposely) ad-free and non-monetised.