Saving money is the foundation for financial success. It is the root of what separates the rich from the poor. For most people saving money is not easy. Clearly, it is much more natural to spend money than save it. Since saving is not natural, it is something we must learn to do and work at. Saving money over a lifetime requires conscious effort and continued awareness so that it becomes a habit.
Are you a spender or a saver? Regardless of the answer, most of us could all use a little more savings so here are my principles for saving money.
- Know how much you make and how much you spend. The starting point for any financial goal is to understand your spending patterns. Study after study shows that wealthy people know where they spend their money. They either budget or track expenses. Just knowing how much you spend and where you spend your money sets the foundation for a sound financial plan.
- Save first, spend later. Next, is to simply get started. Start an automatic savings plan. Have money come automatically come out of your bank account or off your paycheque. Most people spend first and try to save what little they have left over. The best plan is to save first and then spend what you have left over.
- Understand the magic of compound interest. Compounding has often been referred to as the eighth wonder of the world. Quite frankly, if you really get compounding you will understand the next two principles. The key to understanding compound interest is once you get enough money working for you, you then no longer have to work for money. It’s truly amazing.
- Start savings sooner than later. As a financial planner, the most common comment I get from people is “I wished I would have started sooner.” Rich or poor, it’s something everyone says. If that’s the case, then don’t let anything stop your from starting a savings plan. Stop the procrastination. It’s never too late to start.
- Something is better than nothing. How much should you save? Any financial planner can run some numbers and tell you how much you need to save with the right assumptions. Even if you don’t have a financial planner, you can find many financial calculators on the internet. As far as I am concerned, the amount matters less than getting a savings plan started. You’ve got to start the habit. Never let any hurdles get in the way of getting you started. Remember something is better than nothing and more is better than less.
- Stay disciplined, be aware and get rich. Saving money is hard work and don’t let anyone tell you otherwise. In a consumer world, it is so easy to get lured into spending your money on the next thing. I’ve always said that saving money requires three key things: effort, awareness and discipline.
For most people, get rich quick is a low probability event. Instead, put your effort into the one strategy that is boring but has a proven track record to success. Get a savings plan in place. Worry less about where to save the money and what to invest in. Get the savings habit in place and once you have money saved, then worry about how to maximize your returns.
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Hi Jim,
Great post here! But I’m missing something that is (in my opinion) critical to retiering happy; passive income.
Allthough letting money work for you is pasive income, you have to have a lot of money to make this work.
True passive income can be reached quite easily at the moment.
What’s your opinion on this?
Dennis
Very good information to read.Thanks
I always get stuck at staying disciplined, I have recently opened up a new bank account and am saving automatically. The beauty of this is that i dont have access, thus it is out of sight and out of mind
[...] Saving money: If you intend on switching insurance firms, be sure to open up your insurance plan before canceling your old one particular. If you stop your current plan first you will discover yourself uninsured at the worst doable time, tension to be found and paying for the specific situation your self. Saving money isn’t worth it! When you will decide to purchase a new insurance coverage, make certain you might be evaluating the same insurance deals. You might find a low price provided by an insurer, however, you have to ask them what kind of insurance coverage you will end up receiving and precisely what your deductible will likely be to ensure it is truly saving money whilst getting the identical insurance coverage you currently have. Getting under-insured is just as bad since having to pay an excessive amount of for your insurance! Minimal coverage will give you minimum protection; therefore ensure you’re entirely covered with insurance coverage. Saving money on your payments can’t help you if you realise them in a scenario your own insurance does not protect. [...]
[...] Saving money: If you intend on moving over insurance firms, be sure you open up your brand-new insurance plan just before canceling the old one particular. In the event you stop your own plan first you will discover yourself without being insured at the worst doable time, causing to be revealed and spending money on the specific situation yourself. Saving money isn’t worth it! When you may decide to buy a new insurance policy, make certain you’re evaluating similar insurance offers. You might find a decreased price offered by an insurer, however, you have to inquire what kind of protection you will end up acquiring and exactly what your allowable will likely be to make sure it is truly saving money whilst getting the identical protection you currently have. Becoming under-insured is just as bad since paying out an excessive amount of for the insurance! Minimum coverage offers you minimum defense; therefore make certain you’re totally covered with insurance plan. Saving money on your payments won’t assist you if you learn them in a situation your own insurance plan does not include. [...]
[...] Saving money: If you intend on changing insurance firms, be sure you open up your new insurance plan prior to canceling your old one particular. If you stop your plan first you will spot yourself uninsured at the worst achievable time, making to be uncovered and spending money on the specific situation your self. Saving money isn’t worth the risk! When you will certainly decide to purchase a new insurance plan, make certain you might be evaluating the same insurance bundles. You might find a low price made available from an insurer, however you have to inquire further what kind of insurance coverage you will end up obtaining and just what your deductible will likely be to make sure it is truly saving money to get the identical insurance coverage you currently have. Staying under-insured is just as undesirable since having to pay an excessive amount of to your insurance! Minimum coverage will give you minimum security; therefore make certain you’re totally covered with insurance plan. Saving money on your payments won’t help you if you discover them in a predicament your own insurance does not protect. [...]
Hi,
I like the post, but do you think saving is the way to go? A lot of people like to save money, but still want to have a great living standard. I don’t think these two go together.
I think people have to find a way to save money for sure, but also try to get some more income.
I believe that’s the only way to financial freedom.
Martin
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