Have you ever felt jealous of those people who seem to be saving money effortlessly, yet are also traveling, doing cool stuff and enjoying life?
Yeah, sorry, I’m one of them.
But I can emphasize, I am jealous of the girl who can eat anything she wants and never gets fat. Even though her secret is not rocket science: she consumes less calories than she burns during the day. Just like I spend less money than I earn. My skinny model nemesis has two options to stay fit, she can either eat less, or exercise more. Just like I can try to spend less, or earn more, in order to pay for a number of fun things and still find my savings accounts funded.
Let’s have a look at how a combination of both can really boost your savings.
It is all about balance
Super savers are just regular people, who know they can’t spend lavishly on every single thing they set their eyes on. Yes, like when you eat a burger and know you’ll need to have soup for dinner. There is no spending police that will tell you what you can or cannot spend on, but if you swipe your card mindlessly and too often, you’ll be broke before the month ends.
Managing a cash envelope for fun money can be a good idea. Say you have $50 per week to do whatever you please. That could mean 5 nights out with a drink or two at happy hour, or one nice dinner and having to find other cheap entertainment for the rest of the week. You might feel deprived at the beginning, but once you find balance, it will come as second nature.
Make money disappear
Pay yourself first is one of the most important mantras of basic personal finance, and super savers apply it religiously. What does that mean? Simply that before you start touching your paycheck, you should fund your retirement accounts, your investing accounts, your savings accounts for short and long term projects, and so on.
Actually, if you carry some short term debt, making overpayments to get rid of your balance as soon as possible should also be part of your monthly routine.
Once every account is funded, rent, utilities and recurring expenses are paid, whatever is left on your account is what you can spend for the month. Setting saving goals beforehand and executing them at the beginning of the month removes any need for willpower. Imagine that instead, the money remains there, on your checking account. It would be easy to give yourself a pass and spend it, right? Well, it might happen more often than you think, and before you know it, retirement is delayed by 10 years.
Yes, cut yourself $100 worth of slack every month for 30 years, and that is $150,822 you’ll be missing in your nest egg for retirement (assuming you invest at an annual rate of return of 8%, less than the average S&P500 return over the past 30 years).
Make money work for you
One thing super savers learn early on is the power of compound interest. Meaning by reinvesting interests or dividends year after year, these start generating money as well. And you don’t want to work hard for your money, you want your money to work hard for you.
So stop leaving superfluous money in checking, get the highest yield you can for your savings, and invest any sums you can afford to leave untouched for the mid to long term. Even a few points in interest can make a big difference. For example, if you save $250 a month on a 1% savings account, after 30 years, you will have $105,001. If you invest it instead, and get 8%, you will have $377,055. That simple.
Money is a tool. It will buy you freedom for the future. Every time you save $100, that is a day you can live doing what you want, and not working. Like a diet, saving should not be seen as a deprivation, but rather as a way to make your future wonderful. Start picturing the end goal, the relaxing life of leisure you can live in retirement, and saving will become much easier.