The financial health habits of an effective saver

Property investor and entrepreneur Arjun Paliwal says establishing good saving habits and sticking to systems will allow property investors to build wealth faster.

The ultimate goal of every investor is to grow wealth without compromising your lifestyle, and letting your investment do the work for you. But Arjun believes this isn’t possible without practicing the right saving habits and embracing the right mindset.

He talked to KnowHow founder Bushy Martin on the Get Invested podcast about his unique and effective 40 50 40 50 savings rule.

“So the 40 50 40 50 was an internal challenge where around 40% net of our (Arjun and his wife’s) income would be saved, then we’d move on to 50% net, then we’d move on to 40% gross, and then 50% gross. And this was a challenge to be able to stretch ourselves to a level of savings,” Arjun said.

“The most important part about that saving was it had to happen the day or the next day of pay, and our accounts needed to be glued together by things where we had mechanisms in place where you had no other choice but to live off the remaining outside of the 40 50 40 50 challenge. So that was huge.”

He then said this leads into the 4 + 1 rule of property investing, which is four key ways to build wealth faster.

“That first system was then compounded with the realisation of this rule I call the 4 + 1. One was your regular savings and that habit of 40 50 40 50. The second was lump sums. The third is appreciation, for once you’re in an asset, it really can start to compound and multiply from there. The fourth was tax, the benefits that came along the way that you can have when becoming or participating as an investor,” he said.

“And the fifth and final was something else, that’s what I call other people’s money, whether it be leverage, joint ventures or all these other things. But that was more down the track to start off the journey. It was really us two putting it together, and along the way from these habits, we did have a goal together of buying that first place, which was a family home.”

By implementing these strict saving habits, Arjun and his wife held more confidence when investing in property.

“We saw this huge balance of red hit our online banking. And initially we thought ‘ok it’s over, this is it’. We just sit it out and and do what everyone does. But what hit us was that because of those personal habits, because of those savings, it actually never felt like we had a mortgage, which is strange to say, but when you build these habits before getting into something, it’s kind of like a practise before a game,” Arjun explained.

“So that’s where it happened for us, where we realised the journey for us to start investing is going to become much more attainable and much easier because we had these habits from the get go and we were on to the next and thinking about the next. And that’s kind of how it started because it didn’t feel so hard after we stepped into the first property.”

But it’s more than establishing habits – sticking to strong systems is instrumental. It’s this thinking which took Arjun down the unpopular pathway of using credit cards in his investing.

“I did something that many may feel like isn’t really the best way, but for me it was. And what it was is that I incorporated credit cards and this is how it was a big benefit to me. In the earlier days yes, with this 40 50 40 50, expenses aren’t perfect in nature, splitting up monthly and the luxuries of life aren’t perfect in nature where you can have everything divided by the monthly cost that you want, and so what this led to was some risk management, but also so we could have some fun along the way,” he said.

“With the credit card approach, we decided that we would have limits at the start of our journey that was equivalent to 10% of our income, and then afterwards we tightened that down to 5% of our combined income. So 5% we found was the sweet spot.

“Now, the power that had was that when you are saving this 40 50 40 50 year, you have a target that you want to hit. Once you hit that target and you are now deploying that money into a property, the next target for us was a small buffer, and then the third and final target was to clear any of the credit card damage.”

Arjun further explained that the consequences of putting the payment of credit card debts lower on the priority list are outweighed by the benefits of using your saving systems without disruption.

“Now, why we are sitting it in this order is that the credit card allows us to go through those ups and downs, but me having a little bit more interest to pay is so much better than disrupting a habit of savings because that habit of savings being disrupted is going to create a huge shift in your timelines of achieving something,” he said.

“Paying a small expense for some upside that you had or flexibility that you had to keep to a system is not the end of the world because you can now shift focus to, one, saving to buy this property, two, saving X amount for the buffer, and three, it doesn’t matter if I’m not saving for the next property for the next few months because the rate of savings was so great at 40 50 40 50, this credit card’s gone in five months.

“So I feel that the things that sometimes are looked down upon can be great ways to keep systems and systems are more important than the actual dollars and cents of what you gained on interest or lost on interest, because those systems are what can keep habits happening and can get you to the next goal.”

Listen to the full interview. Part 1 can be found here and Part 2 here.

It’s important to get professional advice, and a strategy, for your specific circumstances and goals.

Want to Know How you can build wealth with the help of leading, qualified experts? Talk to the team at KnowHow, now.

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