A big theme of my blog is to lower your expenses year over year. One of the easiest ways to do so is to prepay bills when it makes sense to do so. Too many people look for the big discounts in their personal finance journey. They think “a two percent discount? That’s nothing”.
No, a 2% discount in a single day is a ridiculously large return on your money. You should always take a 2% discount all day long without question if you can afford to pay the remaining 98%. A 2% single day discount is an astronomical amount if you annualize it. Annualizing the 2% discount amounts to an 700%+ yearly return.
If you get a similar offer, you should always choose to prepay bills. Obviously, the higher the discount, the better off you are but don’t write it off if it’s in the single digits. After all, risk free returns are the best returns you can ever generate. A bird in the hand is worth two in the bush.
So many people actually overlook this fact. Big wins are definitely important in personal finance. Instead of a 2% discount, you would much rather have the 700% discount where you get paid to spend. Sure, that monumentally helps but in personal finance every win adds up.
After decades of small wins that you get that others overlook or neglect, that’s when you see the fruits of your labor. The difference in quality of life is remarkably noticeable when comparing someone who took small steps every day vs someone who took no steps. It matters.
Someone who betters himself 1% every day is better by 37.78 times by the end of the year than the start.
Prepay Bills That Offer a Discount
I utilize multiple resources to never pay more than I need to. One of the resources is my credit card. Some personal finance bloggers advise against a credit card to avoid having debt. However, I am a lifelong proponent of credit cards as long as you don’t carry over a balance. Pay off your credit card every month, please. No exceptions and without fail.
Some credit cards offer a 5% cash back on different rotating categories. Meaning, can prepay bills that you were going to spend money on anyway and get a 5% discount on top. There is no way that you can lose under these circumstances. In situations where you can’t lose, you go for it.
In a given year, my internet and phone bill both comes out to be approximately $500 each. This is spending that I HAVE to spend on whether it rains or shines. In cases like this, I will always choose to prepay and never look back. After all, it’s free $50 that I wouldn’t have had otherwise.
Some people think “$50 over a year? That’s nothing, why are you getting so excited over this?” What’s important to note is that this is only one small win that I have. I have another credit card that offers a 5% discount on insurance payments. That’s another $50 in my pocket, right there.
What’s great is that this is one of many wins that I’ll score throughout the year. There are numerous events throughout the year offering rewards to spend money on things that you would have spent money on anyway.
The little wins that I get throughout the year is one of the reasons I amassed a $290,000 fortune by 25. I will continue to hunt and act on deals.
Small Wins Add Up
I will prepay bills starting December 2020 through March 2021 and I am the first to admit that it is a small win. However, this is only one avenue that I will be implementing as part of the personal finance strategy. Another avenue is prepaying bills in groceries and food as well.
I usually succeed in scoring a 10 – 15% discount on my grocery and food bills, which I will highlight at a later post. At an annual spending budget of $3,000 – $4,000 for food, I get back an extra $300 – $600 a year. For not working more hours but for doing nothing.
The math is there. Saving an extra $1000 a year invested at an average 7% yearly return will total approximately $213,000 by the end of year 40. Of course, $213,000 will not be worth the same as $213,000 today. However, I will bet that people will still accept that $213,000 is a lot of money in 2060.
This isn’t even because you worked more to make more, this is solely because you managed your expenses. The downside to this strategy to be rich is that there is a cap in your upside. The upside is that it is completely risk free and has no headaches.
The ultimate goal is to minimize your expenses and maximize your earnings. The higher the spread between your income and expenses, the better off you are. Without question. Therefore, it doesn’t hurt to learn how to manage one side of the equation.
Try optimizing expenses for one year and see how far you can get through this approach. My bet is that you will be pleasantly surprised at the results.
Billionaires Spend Like They’re Poor
There are people who may be turned off by the unattractiveness of saving. It’s not sexy, it sounds as if you are being cheap, trying to save every dollar you can. I’m here to tell you, yes, it does sound cheap but it isn’t cheap. As long as you follow the priorities of spending, you aren’t cheap.
Yes, there will be a lot of peer pressure if you announce you will prepay bills and tighten your wallet. I’ve had my fair share of peer pressure. Multiple friends, acquaintances, and coworkers ridiculed and mocked my spending habits.
Most thought that retirement in 10 years was impossible until a business was started. No way did they think that they can achieve it by saving and investing money.
The majority of the people are under the misconception that billionaires spend like crazy. That misconception couldn’t be more wrong. Billionaires stay billionaires because they spend less than what they make. Not just a little less but significantly less.
Given the choice of spending $100 on a pair of Nike shoes vs $95 on a pair of Nike shoes, what would you choose? Always make the less expensive choice if everything is staying the same between the two.
Don’t be “that guy” you know who owns a $30,000 car on a $50,000 income. Be the guy who saves diligently over the long term because you have the vision. The vision of how you know it will turn out after 40 years has passed. You will have a high chance of coming up ahead.
Differentiate Yourself
After reading countless studies of how the 1% think and manage their money, this is the conclusion. They don’t let lifestyle inflation keep up with actual inflation. They prepay bills when necessary, negotiate to lower prices, and find coupons and deals.
You don’t want to be a poor person that appears rich, rather you want to be a rich person that appears poor. Remember that Carlos Slim once haggled with a store owner for a $10 discount on a tie. That’s the richest person in Latin America, folks.
He doesn’t let pride and ego get in the way of business, he will fight to every dollar what is fair for both sides. He is definitely the type of person to jump to prepay bills if offered even a 1% discount. Without questioning it at all.
One decision will not make your life dramatically different. The accumulation of small decisions over a long period of time will. You have to actively decide to make the positive choices, inch by inch. If you actively decide to stay still or make negative choices, you won’t enjoy life at all.
As others freely spend their money, you can work on preserving it. That’s not to say you won’t have fun money in your budget. It means that a majority of the time, you will continue to save. It may be a slow and frustrating start in the beginning, even for up to two or three years.
Patience will win out in the end and at the end of the war, the patient will be the last ones standing. Trust that the process will work out in the end and one day, it finally will. I will be right there with you through to the end.
