“Save a part of your income and begin now, for the man with a surplus controls circumstances and the man without a surplus is controlled by circumstances.” – Henry Buckley
Saving money will put you on the road to financial freedom. Saving alone will not make you rich but it does set a strong foundation. Eventually you will have to invest in things like YOURSELF, real estate, stocks, entrepreneurship, farmland, oil wells, etc. Business woman Sara Blakely who founded Spanks Hosiery Company used $5,000 of personal savings to launch her business. She is now worth $1 Billion.
Earning a high income alone will not make you wealthy either. We have all heard about the lottery winners and professional athletes who made millions and went broke simply because they didn’t know how to save. I know many high income earning professionals who could not handle daily expenses if they suddenly missed one paycheck. Most people raise their spending to match their level of income. Whether they make $40,000 a year or $4 million, they still end up with nothing. To win the game you have to play offense and defense. Making money means nothing if you don’t learn how to keep it.
How much should you save?
The average American only saves about 3 % percent of his or her income. The popular book “Richest man in Babylon” recommends that you save 10 percent of your income. Saving 10% is great, but I recommend that you should save at least 40% of your net income. Saving 40% may sound extreme to most people, but you don’t want to be like most people.
Even if you start saving 1%, the most important thing is that you get in the habit of saving now. As your income increases your rate of saving will also increase. You must take extreme action if you want to escape mediocrity. Your goal should be to get rich as fast and as young as possible. You don’t want to be normal. Like Dave Ramsey says “Normal people are broke”. The more you have saved the more you will have to invest and multiple your money.
Set a financial goal
Most people don’t set financial goals. Money just comes and goes. According to a 2012 report by Pitney Bowes, the average savings account balance in America was $5,900. This is nonsensical. The average American makes around $50,000 a year and only has $5,900 in savings? It doesn’t make sense to work 40 hours or more per week year after year and still not have any money to show for it. This all stems from not having a plan. The famous saying goes “If you don’t have a plan, then you are actually planning to fail”.
I was never able to accumulate money until I set a specific goals on how much money I wanted. Write down short-term monthly goals, annual goals and a huge 5 year goal. Continue to look at your goals every day. Cement those numbers into your subconscious mind. Raise the bar higher every time you reach a certain level. Be thankful but never satisfied. You have to stay hungry.
Automate Your Money
Automation is the key. I have an account with a traditional brick and mortar bank to handle all of my normal transactions. I set my account to automatically transfer a certain amount to a separate online bank once a month. I never see the money nor do I have to think about saving. This is how you pay yourself first. I learn to live off of whatever else is left over. I am never tempted to withdraw from my online savings because I do not have an ATM card or personal checks attached to this account. The money is out of sight and out of mind. Automation is the best method for consistently saving. You can also link a brokerage account to your online savings account just in case you want to invest a portion of it in the stock market. Saving and investing has never been easier. You will look at your balance a year or two later and be amazed.
Cut Expenses
If you want to save more than the average American you must keep your expenses lower than the average American. Monthly car payments will take a huge bite out of your income. I sold my corvette and my gas guzzling SUV. Driving high end luxury cars should not be a priority in your life. I’ve had a lot of high end cars in my lifetime. I discovered that no matter how cool the car was, the novelty wore off after 3 or 4 months. All material items lose their thrill. Allocate your resources towards income producing assets. Watching your money grow will never get boring.
The average American car payment is close to $500 a month. I’d rather invest $500 a month in a dividend paying blue chip stock or a total stock market index fund. If you were to invest that $500 a month into total stock market index fund with a 10% annual rate of return, you would have over $100,000 in 10 years. 99% percent of cars are worth practically nothing and look very outdated after 10 years. Go and look up a picture of your favorite car from 10 years ago and see how unattractive it is today. Would you rather have $100,000 or an old outdated car? 10 years is going to pass by regardless, so you might as well create wealth in the meantime. Think about the peace of mind you would have with an extra $100,000.
Forget the big car payments and just get a simple car for less than $10k. Cars are more dependable than ever and will run just fine for at least 10 to 15 years with regular preventive maintenance. People in Cuba have shown that you can make a car last for over 40 years if you really wanted to. Cubans are still driving cars made in the 1950’s. You don’t have to keep up with the Jones. Don’t let your ego get in the way of building wealth. Luxury cars are fun to drive and great to have, but hold off until after you are truly rich. Your real friends don’t care about what you drive. People remain poor because of trying to prove they are rich. You will become richer when you have nothing to prove.
Stop watching so much TV and get rid of that cable bill. You should be busy working on your passion or reading books on personal development and finance. The average cable bill is over $100 a month. There are plenty of movies and TV shows on the internet for free. Streaming movies on Netflix cost less than $10 a month. $100 a month invested in the stock market over 10 years with a 10 percent return would give you $20,000.
If Americans simply invested their $500 car payment and $100 cable bill in the stock market with a 10% return they would have $438,000 in In 20 years. In 28 years they will have over $1 million. Accumulating $1 million in 28 years is being conservative. There are many other frivolous expenditures that people can eliminate and invest to become a millionaire faster. Everyone’s lifestyle is a little different. You have sit down and make an honest analysis of your finances. Many trivial habits that could be scaled back or cut out completely are dining out, weekend partying, impulse shopping, alcohol consumption, cigarette smoking, buying lotto tickets etc. You are looking at thousands of dollars that could be invested annually when you add up the cost of those four activities alone. None of those undertakings make you a better person or bring you closer to millionaire status.
Because of inflation, I realize that in 20 something years $1 million will not be what it’s worth today. I can guarantee you that having $1 million in the future will be a lot better than having nothing at all. Saving and investing is just one form of wealth building. You should work on entrepreneurial projects that will increase your net worth also.
Sacrificing and saving doesn’t mean you will have a boring life. Sacrificing simply means you are removing lower level activity and replacing it with productive life enhancing activity. You are spending your time and money on things that will give you a return on investment.
I like to spend money on travel. I become wiser about the world and gain priceless memories and experiences. There is nothing wrong with spending on something that has long-term benefits. You want to look back 10 years and say “that was money well spent”. You will never regret spending money on healthy food, gym memberships, wealth seminars, books, travel, etc. You will regret spending money on excessive partying, luxury cars, and impulse shopping.
One of the most effective ways to fight consumerism is to delay the purchase. If it’s not an essential purchase like groceries then it can wait. Go home and think about if you really want or need that new Swiss watch or designer purse. Most of the time you will go home and forget about it after a few days. Most impulse shopping stems from boredom. The masses of Americans flood the malls every weekend because they don’t have anything better to do. They don’t have a chief aim in life to work on. When you have a passionate goal to work on, you don’t have much time to think about wasteful spending.
America is the wealthiest country in the history of the mankind. If you are in America there is no excuse not to become a millionaire if you truly want it. Actually it really does not matter what country you live in. There are wealthy millionaires and billionaires all over the world. You are guaranteed to be rich and successful as long as you believe in yourself and never quit. You are limitless.
Have the Right Mindset
Do not save money for an emergency or a rainy day. That is scarcity consciousness. If you dwell on a rainy day then it will come and wash all your money away. You are saving for financial freedom and abundance. You are saving so you will be prepared to take advantage of investments and business opportunities as they come. Maintain the abundance mindset and abundance will be yours.