One September some years ago, I was invited to give a talk on money to a group of employees at a client company. I told them there were two things I knew about every one of them:
- The first was that they had all received a pay rise on the 1st of July that year – I received this information from the chief financial officer.
- The second was that they had all had less income tax deducted from their pay, I knew that because everyone in the country had benefited from a tax reduction from the 1st of July.
But I then said that there was one thing I didn’t know about any of them: how much more money did they have in their bank accounts because of these two events. Most of them looked at the floor, but a few of the wiser ones, who had saved the money, smiled.
Cyril Northcote Parkinson was a British naval historian and author. When working for the government, he observed that “work expands so as to fill the time available for its completion”. While reviewing budgets in government, Parkinson also noted that expenditure expanded to meet the money available.
The story above is an example of Parkinson’s Law when someone gets a pay rise or an increase in income, but a year later is no better off. It also applies when consumer prices fall, e.g., petrol. Where does the money go? – We find something else to spend it on!
People with poor money habits often check their bank or debit card balance to see how much they have left to spend. Worse is when they check how much credit they have left on their credit card.
Terminology is important when it comes to spending money. Our discretionary income is what we have left after taxes, loan payments and other legal commitments. How we spend it is at our discretion or choice. Disposable income is what is left after we exercise our discretion.
To master money, we must BREAK THE LAW! (Parkinson’s Law) We do this by exercising discretion in making conscious choices on saving, loan repayments, investment, and spending.
The best way to do that is have a personal money system that takes little effort to operate. A simple but effective system where we control the how, where and what, and when of spending our money
We will look at a system that will work for anyone next week.