‘I’ll have a baby when I can afford it.’ How many times haven’t we heard this line or said it ourselves?
The problem with this statement is that you’ll never be able to afford it. A sobering thought. We have children even though we can’t afford them. Yet we make it work.
All are fed, clothed and educated, and we have no idea how we managed it all.
Now, while I’m not advocating you commit to things you cannot afford, I am highlighting that if you have to make it work, you’ll find a way. So, set yourself goals!
I had the opportunity to be a visiting scholar at the Haas School of Business in Berkeley, California, last year. This came with a huge financial cost as I had to pay my own way for most of it.
I couldn’t afford it, but I couldn’t say no to the opportunity.
So, I spent the months preceding my departure saving as much as I could.
There was no form of additional income over this period, just cost cutting. The end result – I went to Berkeley!
While I was there, I met up with a hero in the world of behavioural finance: Hersh Shefrin. I was telling him this same story, and his response was very pertinent.
While my saving for my trip was admirable, his opinion was that the true test of my ability to save would be when I got back home; when I no longer had this financial goal in mind.
Would I still be putting the same quantum of money away each month (seeing as though I had already proven I could)?
Well, I’ve been back home for a while now, and I don’t know how I managed to put away that quantum of money each month.
I look at my budget and can’t see it. Why not? Because I don’t have a set financial goal at the moment: a certain amount that I need to save by a certain date.
To conclude, I’m not saying you should pre-commit to expenditure you can’t afford, but I am drawing your attention to the importance of having financial goals – be it a family vacation or paying off your credit card debt. Set yourself a target and you’ll make it happen.
Author: Gizelle Willows CA(SA) MCom Finance is Senior Lecturer in Financial Reporting at the University of Cape Town