The things that really matter
Most people don’t want to think about money.
Fortunately, that is not an obstacle to a making a financially secure and comfortable life. The key is to focus on things that deliver outsize benefits, and not worry about the rest.
Frugality and deliberate spending have a bad image. Think of the blog posts telling you how to make your own soap in order to avoid paying the outrageous prices at the supermarket.
I think it’s fine to make soap if you enjoy it, but it isn’t essential to gain control of your finances 😉
No, in order to vanquish money worries, all you have to do is spend less than you earn, and save and invest the difference. If you do that for the rest of your life you will be able to largely ignore money and enjoy your days doing what matters to you.
The biggest payoff probably comes from increasing your income, but only as long as you don’t increase your spending along with it. A relatively painless way to take advantage of this is to save a proportion (half?) of any pay increase, which means you get to spend the other half. Win-win!
You can increase your income by getting a new job, getting promoted, taking on a second job, creating passive income (by writing an ebook, for example), or by investing.
The most effective way to keep your spending in check is to focus on the big wins: housing, transport, recurring expenses. If you do that you really don’t have to worry about buying a book or getting a coffee.
Housing is most people’s biggest single expense, so spending a bit of time thinking about how to reduce the cost will yield huge returns. Paying less in rent or having a smaller mortgage payment can be the difference between a comfortable life where you have money in the bank and can afford to invest for the future, and one where you barely have enough money to pay the bills every month.
Next up is transport, and basically cars. Cars are an enormous money-suck. The worst possible thing you can do is buy a new car every few years (unless you buy two or more new cars every few years). You may as well light your money on fire.
Not owning a car, buying second-hand, buying the smallest and cheapest car possible (and renting for the odd day when you need a bigger vehicle), and not using your car whenever possible is going to leave you with a lot more money to save or spend on other things.
If you really want to spend money on cars, that is of course fine, but make sure it is a choice and not just following the default option for society (I’m still astounded at all the 0-2 child families I see in Japan driving those ‘wagon’ minivans, presumably to keep up with the Yamadas).
Recurring expenses are things like your mobile phone bill, insurance, subscriptions to things, your grocery shopping, gym membership, etc.
Even a small monthly payment adds up to large amounts of money over time, so be really careful about making sure they are worth it. Even if you think the service is essential, try giving it up for a month. You may find you don’t miss it and therefore didn’t need to be paying for it 🙂
How about you? Any good ways to make or save money?
Nice article. I once got to the point where I was willing to pay someone less than the price of my upcoming car insurance premium to take my car away before the payment was due. 🙂 Thankfully managed to sell it for a token amount though.
I’ve never owned a car in Japan, but I do find that without one there are just some places you can’t go – onsens and weekends away are pretty difficult without renting. One thing that I’ve just started trying out is Times Carshare. You can pay as you go in 15 minute blocks just reserve online and unlock a nearby car with your member card. I didn’t do it until now because they only allow you to register with a credit card, and nobody would give me one for two years (!!). It is more expensive that rental for a few hours but will see how it goes. One thing paying per use means, is it shows you the cost of driving. If you own the car, you pay that cost too, but you just pay it lumped up as maintenance, tax, insurance, shaken etc., so the immediate cost is hidden from you – and you’re also more likely to take the car down to the shop rather than jump on your bike – a health penalty too!
Talking about coffees. An occasional trip to the cafe with friends is reasonable, but if you’re spending 600 yen in Starbucks every day that’s over 18k a month. That’s more than some people’s iDeCo allowance. 😉 That probably fits into your recurring expenses category above. My personal vice is eating out. I really need to get better at home cooking. The double benefit of being cheaper and healthier is undeniable, I just can’t find a way to get into the routine and happen to work in a place that is surrounded by restaurants and takeaways…
I know what you mean about eating out! I could save money and improve my health by packing a lunch… so far it hasn’t been enough of a priority 🙂
Times+ is great! It has really increased the number of cars around me lately to the point that I can pretty much always pick up a car at the last minute except for very peak times. It also has had the knock on effect of forcing the big rental companies to compete by offering lower cost short term packages. If you are going far or need a long term rental use one of the rental companies but for short term jaunts, car sharing is the way to go. I used to want to buy my own car but, if I am honest with myself, it is a complete waste of money these days if you live in Tokyo.
I am slowly coming to the realization that, for individuals, ownership of material goods is a poor allocation of resources in many situations. My philosophy is, where possible, rent and let someone else take the burden of the maintenance costs, insurance and depreciation. If you are a corporate entity you can right off those as expenses against income on your taxes but you can’t as an individual (which is quite unfair when you think about it).
I completely agree. I had to move out for a couple of weeks this week (we’re lending our flat to family) so I decided to take everything I own with me as an exercise in seeing what I have and getting rid of some of it.
I’ll have to try Times+. There are a couple on my street…
Spot on about cars. Especially about seeing so many big (8/9-seater) cars when they aren’t necessary. I’ve even known single men to have one. I think it’s partly an ego thing, to feel like a “big man” when driving!
Also more so in Japan than in the USA (not sure about UK) but car upkeep here is much more expensive. I really like cars so I figured owning a moderate white plate sports car was worth it. I owned my Prelude SiR outright, paid cash for it. But at the time (my salary wasn’t too great) I one day realized nearly 1/4 of my entire paycheck was going to this car. I had to pay for parking at my apt, then again at work. Of course, gas. Insurance. Tires on this thing cost me 80,000 yen every couple of years (nice sticky sport tires AND snow tires). Then shaken and insurance. Getting rid of that car was the 2nd best financial decision of my life (starting a serious investing habit is of course the first). Now my wife and I share one yellow plate and I ride a motorcycle most days. What I was spending in gas alone in one year bought me a used 250 ZZR that is more than fast enough to kill me, tons of fun, has no shaken, no need for extra parking, insurance is 5000 a year done done. I save so much from getting rid of that white plate its downright disgusting. And like you said about the big 8/9 seaters. I live next to some very sad looking abodes and most of the people living there drive these MASSIVE white plates cars instead of saving money or upgrading their very very sad living conditions.
I like your point about living conditions. I think part of it might be people don’t realise they can get any better. Maybe it’s the standard story of people being convinced they need more *stuff* which seems affordable, whereas a big house is so expensive it’s not worth considering. I watch people buy up apartments in new build mansions surrounded by more concrete with no greenery in sight, and think why do people want to live here? I think they look at the marketing brochure that advertises nearest train station, shopping mall, parking space, etc., but nobody cares too much about greenery, pleasant neighbourhood and not living on top of each other.
There is one concept which ties in very closely with what is being espoused in this article, and is incredibly powerful in building one’s assets.
That would be to pay oneself first.
Spending less than what we is fine and all, but if income is already saved up at the source even before we touch it, then like it or not we are forced to spend less than what we earn.
Have personally lost count of the number of times which I myself overspent a wee bit on dining and entertainment with friends, but ended up with more savings at the end of the month!
That is a great point. My investments (monthly to THEO and iDeCo, and twice a year to NISA) are bills to be paid, not optional extras.
I have found it incredibly useful to see them that way.
(I also chuck any extra money in on top when I get some)
Come on, we all know that the real path to financial independence is to make your own soap. It’s not a secret anymore, why do you insist on hiding it. Fake news, I say!
Joke aside, you say:
“The biggest payoff probably comes from increasing your income”
–> mathematically, the biggest payoff is actually to reduce one’s expenses. Because if you think of a 33% tax rate on your income, in order to spend 1000Y you need to make 1500Y. In other words, 1000Y you don’t spend is 1500Y you don’t have to earn. So, technically, as much as one can afford to, reducing one’s expenses has a bigger payoff than increasing your income.
That’s if we’re talking of a recurring expense, obviously (soap counts)! Because an increase in salary is typically something that will increase the salary durably, meaning you’ll make that 1500 extra yen every year.
That’s a great point (not about the soap).
I was meaning more that there is no upper limit to increasing your income (a la Ramit Sethi or MJ DeMarco) whereas cutting expenses gets increasingly painful after you grab the low-lying fruit…
Of course, the best thing is to optimize your lifestyle for happiness, then expand your income while not increasing your spending at all 🙂
Great post. I agree about the car, and I’ve managed to go without one in Japan for the last 7 years. Only problem is, as I get older and with a family potentially on the way, biking is becoming less and less attractive.
Hello, useful post and really glad to have discovered this site.
Waiting for the two week window here when I can finally cancel my Softbank contract without all the fees.
R.e. comments about car-sharing, worth noting that in addition to Times+, there are two other providers in Japan – Careco and Orix Car Sharing.
Living in Tokyo, I’ve found riding a scooter saves me even more money (and time) than taking the train. Quit alcohol and ride in the evenings to avoid taxis home and you’re winning even more..
Cheers!
That’s a double win! Spend less and save time.
Switch to a bicycle and you get the third benefit of exercise too 🙂
Totally agree with you points.
For myself, I’m not really good with self-discipline when it comes to money.
So a few years back I forced myself to do bookkeeping for a half year or so to figure out my spending habits. Since then I’ve been alloting a portion of my income (60~70%) to savings & investments on payday of every month, so that the rest of the month I can enjoy my eat-outs and coffees relatively worry-free.
And btw, no car and no mortgage loans for me at the moment.
No loans is a huge one, eh?
60-70% saving rate is really impressive! You deserve those coffees 😉
Haha. I thought I was the only one who noticed the number of young families who have to buy a wagon as soon as the first child is born. It’s almost predictable.
But, anyway, as my Grandma used to say: “look after the pennies and the pounds will care for themselves”. My children have been indoctrinated since they got their first pocket money to put 10% aside as soon as they receive it. My son has taken that to University with him and no question he will continue when/if he gets a part time job.
You’ve set him up for life there then 🙂
The final step is to invest the savings into something that produces growth or income (or both).
The best advice I ever read for controlling your saving – and it has served me well for many years, is to put 10% of everything you earn into a compound interest account. You can spend everything else you earn without worrying. You can then use the savings account for your first mortgage and eventually your retirement as required.
Good advice, although I recommend at least 20% put away for ever 🙂