As a financial expert and dragon on the hit show Dragons' Den, David Chilton believes you can get rich by spending less and saving more! “You don’t have to change your spending habits by very much to increase your savings rate dramatically," he says. "Cutting back your spending by five, six or seven per cent can raise your savings rate by 100 or 200 per cent.” Here he shares four tips to help you get rich by saving.
1. Spending Summary
It's key to use a spending summary for at least a three month period. Nothing can do more to influence people's spending habits for the better. “All the research shows that when people monitor their spending, even without making an effort to adjust, they actually spend less money. Just the act of keeping track creates awareness and changes behaviour," David says. "They save more efficiently and spend more effectively. When spending, they tend to migrate to the areas that give them true joy and spend less money on things that didn’t really give them any bang for their buck.”
2. Pay Yourself First
'Pay yourself first' is trite and oft-heard but still so important to proper savings. Behavioural economists are now on the bandwagon. Get the money off your paycheque directly before you have a chance to blow it and let the human frailties get involved. David advocates that people should save 10 to 12 per cent of their gross income for retirement — if they start young.
3. Beware of Lines of Credit
Be very careful of lines-of-credit, as they are incredibly seductive. “People cannot resist lines of credit. And the worst combination in the country is a line of credit and a home renovation — once they renovate one room, the other rooms pale by comparison, so they go on to the next room and it’s a never-ending cycle of renovation as they get deeper and deeper and deeper in debt."
4. The Delay
Introduce "the delay" into your life. When you're going to a mall leave your credit/debit cards at home. If you spot something you love and "just have to have" force yourself to wait until the next day to buy it. Usually, the "infatuation" will have worn off.