Being a better saver can literally buy your client time, says André Wentzel, Solutions Manager at Sanlam Personal Finance. For example, for an R800 000 home loan, your client can save an extra R150 per month for five years before taking out the loan, then pay in the proceeds with their first instalment. That gives them a whole year off their bond!
This means they essentially buy themselves an extra year of loan-free financial freedom, André says. While this sounds like a no-brainer, the question is, can converting money to units of time influence savings habits?
The FIRE movement (short for ‘financial independence, retire early’) embodies the relationship between time and money. While it does have its critics, this movement is a fascinating example of how aggressive saving can pay off big time. Made popular by the Mr Money Mustache blog, especially in the US, the idea is that the higher the percentage of your salary you save, the sooner you can retire. The prerequisite, André says, is to live frugally.
The aim of FIRE is ‘to accumulate assets until the resulting passive income provides enough money for living expenses in perpetuity’, according to Wikipedia. The goal is to have a minimum of 25 times your estimated annual living expenses. This is achieved by aggressively saving much more than the typical 10–15%. ‘The movement may be inaccessible to some people, but the savings principles it extolls can apply to all of us,’ André says.
Wikipedia gives the following example or the FIRE principle: At a savings rate of 10%, it takes nine years of work to save for one year of retirement, assuming constant income and expenses and ignoring investment returns. At a 25% savings rate, you’ll be able to save for one retirement year in three years of work. At 50% it will take one year, and at 75% it’ll take four months to save for one year of retirement.
André says every individual’s circumstances are unique so it’s difficult to apply a set formula to everyone, but the idea of equating money with time is a useful one for most people. ‘It’s part of a goal-based savings mindset, where the goal is to “buy time” in our time-starved society.
‘It’s a smart way to visualise a trade-off,’ he adds. ‘It’s important for clients to start thinking about how they can save money and buy themselves time to be present in their lives.
‘For example, they can put money away to buy themselves an earlier retirement or extra unpaid leave to spend quality time with loved ones. It’s also about the quality of the time spent.
‘Saving now can reduce future financial stress, allowing for more meaningful moments.’
Click here for André’s practical examples (below) of how saving effectively can literally buy time.