The New Psychology of Spending Money

So last weekend, I met up with a friend who’s kind of a huge foodie, like she wouldn’t think twice about dropping 200 bucks for a meal at a restaurant. She’s really fussy about her food, which I can never understand because I pretty much eat anything. Except papayas, they’re gross.

Anyways, this friend was thinking about checking out this flashy new Michelin Star restaurant that just opened. She was excitedly telling me about her plans, but abruptly stopped herself and said, “But you probably wouldn’t approve.”

I was a little taken aback. Why wouldn’t I approve? “Because you’re all about saving money and personal finance,” she retorted.

And then it struck me: Most people believe that “personal finance” and “spending money” are polar opposites. This couldn’t be further from the truth – I’ll tell you exactly why following a personal finance system means you can spend on what you love (and no, you don’t have to wait till you’re all white-haired and wrinkly).

The Toilet Paper Thief vs The Guy Who Spends On What He Loves

Let’s compare 2 friends – we’ll call them Mike and Paul. Mike is your typical frugal saver. He doesn’t have a personal finance system but he tries his best to save more. He cooks ramen at home to save money. He takes the bus instead of the subway so he can cut 10 cents per day on his trip to the office. He wears the same pair of jeans every time he goes out. When he goes travelling, he steals the toilet paper and soap from the hostels. He picks up 5-cent coins from the ground.

Paul doesn’t scrimp as much as Mike does. In fact, he spends on what he loves. Paul manages to do this because he has a kickass personal finance system: He’s automatically saving and investing pre-determined amounts every month. He’s automated his credit card and phone bills so he never has to worry about missing a payment. He’s set aside “Big Play” money for parties and vacations.

Once all that is done, Paul has a few hundred dollars left over each month which he can spend on the things he loves, no matter how much they cost: Clothes, meals, drinks, massages – in short, everything that makes it awesome to be young.

Paul doesn’t break a sweat if his cash runs out before the end of the month. He simply stays home, cooks, and reads a free book to pass the weekend. In a couple of days, he’ll receive his next monthly salary, automatically save/invest/pay off his bills, and with the amount of money left over, continue spending on the things he loves.

Who do you think leads a richer life?

Old Psychology vs New Psychology

Most people assume that just because I write about saving and investing, I’m one of those crotchey old personal finance dudes, hobbling around with a gin and tonic in one hand, nagging people to stop spending money. That’s the old psychology of spending money, the one that most clueless people mistakenly follow.

There’s a new psychology of spending money: If you’re faithfully following a personal finance system, you’re allowed to spend on anything you want with the money left over.

In the past 2 months, I’ve had a $325 dinner, went on a $3,505 vacation, bought a new Amazon Kindle, and last night, I paid as much as $14 for a beer (that last one was totally not worth it). I did all of the above absolutely guilt-free, because I’ve built, and followed, a personal finance system that takes care of my saving, investing and payments.

There’s a key difference between the following two statements:

Crotchy Personal Finance Dudes (like Mike): “I will never ever spend on a $200 dinner”

People who read Cheerfulegg.com (like Paul): “I’ll totally spend on a $200 dinner, as long as I can afford it after I’ve saved and invested.”

Which person would you rather be?

PS: Leave a comment or send me an email (cheerfulegg@gmail.com) on how you feel about spending money. What do you spend on and why? What is the one biggest thing you struggle with when it comes to spending? What would you like to learn from my blog to help you overcome it?

The First Mention of My Top-Secret Project

So I might as well be upfront about it right now: I’m writing a personal finance guide for young Singaporeans.

I honestly have no idea on how it’s gonna turn out, or how long it’s gonna take to write. But the pre-research I’ve done for the past couple of weeks from various interviews has given me some very positive results, so I’m super psyched about this project!

Before I go any further, I’d like to really understand what’s important to my potential readers. So if you’re a young Singaporean (21-35 years old) with a full-time job, or if you’re about to start working, I’d love to hear from you via this really short survey. It should take you less than 5 minutes to complete, but it would help me tremendously.

A Bonus for Your Efforts

Now, I know that most surveys are annoying to fill. So to show my appreciation, I’m creating a free gift that might be useful to you. Remember how I’m always preaching about opening a Long-Term Savings account? You’ll want this account to have as high of an interest rate as possible – because that’s where the bulk of your savings will go.

The trouble is, it can be a pain in the ass to find a bank with the right interest rate. Most banks tack on so many conditions to their accounts that it can be really hard to compare them. So… I created a Singapore Savings Account Cheatsheet that compares the interest rates and summarizes the conditions, so you don’t have to do the legwork yourself. This itself could be worth more than a hundred bucks – If you have $25,000 in savings, even a small 0.5% increase in your interest rate could mean a difference of $125 a year.

I’ll email the cheatsheet to you in a couple of days if you submit your email address and sign up for my private list in the survey.

Also, it would be supermegaawesome if you could share this survey with 3 of your friends – It’ll really help me to get better insights, which will in turn help me to write a better book for you.
Here’s the link to the survey again: http://www.surveymonkey.com/s/T9BTPYS. Thanks in advance! 🙂

How I Save Hundreds of Dollars a Year On Books

Fun fact: It takes TWICE the amount of time for me to commute within Singapore from Yio Chu Kang to Changi (25km away) compared to someone commuting from New Jersey to Manhattan (67 km away). I know, it really defies the laws of Physics.

Anyways, I love the fact that it takes me 1.5 hours to get to work in the mornings because it gives me a long, uninterrupted stretch to read. Other than doing the gungnam style in the middle of a crowded subway and embarrassing my friends, reading is one of my favorite hobbies in the world. And it’s way better than playing angry birds or watching Korean dramas.

Another fun fact: Reading can make you rich. The average person reads one book a year, while the average millionaire reads two books a week (Though their reading lists probably consist of titles other than Harry Potter).

The only problem with reading? Physical, paper books are crazy expensive, especially in Singapore where book prices are marked up to ludicrous levels. Libraries help to get around this issue, but popular books are usually almost always loaned out, and it’s a pain to refer back to them once you’ve returned them. When I first started work, I used to go to Borders to browse through entire books over the course of several months. I know, I know, Borders is bankrupt because of people like me.

 E-Readers for Voracious Readers on a Budget

And then I discovered the Amazon Kindle. I wasn’t the first to jump on the Kindle bandwagon – I had my reservations about e-readers too – but buying a Kindle two years ago pretty much changed my life. Since then, I’ve quadrupled my reading from 1 book every 2 months to 2 books a month, spending an average of less than $8 on each of them.

Price

My Kindle has saved me hundreds of dollars on reading. Ebooks are way cheaper to produce than physical books – there are no printing, distribution and storage costs, so cost savings are passed on to consumers.

I did the math: A Kindle device costs between $69 – $139 USD, depending on which version you get. In 2 years, I’ve downloaded 49 books for an average price of $8. Assuming that I bought those same physical books for $25 retail at a bookstore (pretty conservative considering some books can go up to $50-$70), that works out to savings of $833 over 2 years. Amazon also regularly promotes good-quality books for free (yes, free!!) or for a nominal price like $0.99.

 Convenience

The Kindle weighs lighter than a paperback, and is even smaller in size. This, in addition to being helluva sexy, has the advantage of allowing you to bring your books everywhere.

The only time I really get to read is when I commute, so I like having my books with me all the time. This also allows me to devour a book bit by bit in those annoying pockets of time when I’m traveling short distances, like a 10-min bus ride.

Common Objections to Getting an E-Reader:

“But I really like the ‘feel’ of a real book”

Okay you’re not buying a G-string here, why are you feeling up your book for, you perv? E-Readers are more like real books than you think – they use a technology called E-Ink, which looks and reads just like real paper and doesn’t hurt your eyes when you read.

Besides, the “feel” of a book is overrated – After reading a Kindle for 2 years, I can honestly say that I don’t even miss physical books anymore. And is the enjoyment of turning a page really worth $400 a year?

“But I already have an iPad”

Zomg. Every time I hear someone say that, I feel like running into an Apple store, stripping myself naked and yelling, “YOU CAN’T COMPARE AN IPAD TO A KINDLE!!!!” The two devices are made for very different purposes: the iPad is made for media – videos, internet, games, and pictures, while the Kindle is made for reading. Period. You try reading the entire Lord of the Rings trilogy on an iPad with a backlit screen and tell me if you don’t go blind in the process.

So how do I get one?

If you’re in anywhere in the world besides Singapore most countries, getting a Kindle and downloading books from amazon.com should be pretty straightforward.

If you live in Singapore, getting and using a Kindle is a little more complicated, but it can be done. Jeffery’s blog provides excellent instructions on how Singaporean users can obtain one and download books (scroll down to the section on “How to get a Kindle in Singapore”)

Also, you could totally go with other e-readers besides the Kindle (Eg Barnes and Nobles’ Nook is a good choice), but I just picked Amazon because it has the best selection by far.

Happy Reading! 🙂