The Journey to a Million Dollars starts with a single Penny.
Everyone has heard that you should save for retirement. The number’s vary, but everyone agrees that putting money aside is important. Often it is hard to find the funds to put away however. Let’s dive into why that may be the case, and some simple strategies to gain some ground.
1. You’re not paying yourself first.
One of the simplest and yet the least utilized method of ensuring you have some money tucked away at the end of each month is to automatically siphon off some of that sweet paycheck money to your savings before you can spend any of it. This ties in neatly to the second point but before we go there we need how much to set aside. Most experts say the minimum you should strive for is 10% of your total income. So if your weekly or bi-weekly paycheck is something like $330 then the first thing you should do is immediately put $33 aside into a savings account. The old ‘stuff it under the mattress’ trick wont work here. Secondly, and arguably the most important point for this is to cut up any cards that have access to the savings account if you have them.
Your savings does not get to act like a second checking account. This is so important that I’ll say it again. Your Savings Account Is -NOT- A Second Checking Account. This time in italics (ooh, fancy) Your Savings Account Is -NOT- A Second Checking Account!
The reason I am beating you over the head with this simple statement is that as you see the numbers going up in this account you may be tempted into certain purchases, purchases that tend to get more expensive as the numbers go up. Your savings account is only to be used for emergencies, as discussed in the third point.
2. You’re not (accurately) tracking your spending.
I know some that read that will suddenly get defensive but here is the hard truth. If you are unable to save money you have a spending problem. Whatever form that may come in, new expensive car, rent or mortgage is too high for your income, individual vices like smoking, drinking, drugs or sugar.
It’s often the little things that trip people up, not the big ones. Most people can easily recall how much their big expenses are off the top of their head. If you asked a random person how much their rent, car, phone, internet and average utility bills were I would bet cash that they know, or could estimate within 10% of their big bills each month are, but if you asked someone how much they spent on food, gas, snacks, drinks etc I would bet less than 10% know how much they actually spend each month.
Truth be told, as long as you’re not in ever deepening spiraling debt and can’t cover your basic expenses then you already know a little about your expenses. The hidden killer of your chances of wealth are likely to be the little habits you employ every day, especially involving work.
It’s not very likely that you look at a soda, or some candy, a sandwich or whatever from the the gas station or fast food place as super expensive. When you get a meal for two at a fast food joint the cost can easily reach $20 or more depending on where you go and what you get. (I’m talking about combo meals, the full burger, fries and drink)
And don’t even get me started on playing scratch-offs or lottery. The lottery is, among several other things, most accurately referred to by economists and mathematicians as a tax on the foolish and self-conceited. The chances of winning the Mega Millions Jackpot are 1 in 302 million, and the chances of winning the Powerball are slightly more favorable at 1 in 292 million. Just for reference, here are a couple of things more likely to happen than winning the lottery.
- 1/20 Harvard
- 1/11 million, attacked by a shark
- 1/112 million, killed by vending machine
- 1/32 million getting elected, donald trump did it, why not you?
- 1/1 million, struck by lightning
- 1/9 million, become a catholic saint
- 1/30 become a millionare through index funds over 30 years
- 1/6 Fully paying off studen loans
I don’t know about you, but I’m not going to take my chances on the lottery when there are several other things worth more of my time and money
3. You Probably Don’t Have A Safety Net.
Do you know what you would do if your car got a flat? Or something that hits all too close to home for me, if your furnace decides to die in the middle of January? Most people do not have the means, other than with credit cards, to cover a $500 expense, let alone $5000 for a new furnace.
This is the cause for many to get into financial trouble. If you have credit cards, this is usually when they get taken out, but if you are someone who dosnt carry credit then your other options are things like personal loans, payday loans and other types of loans that aggressively charge and go after those unfortunate enough to get caught in that spiral.
Having a stockpile of funds also acts almost like a deterrent to bad things happening to you, for it seems that once one thing goes wrong that another and another soon follow. When you have savings built up its almost like getting a flu shot. It’ll protect you, but you can still get sick (the flu shot protects from one or multiple strands of the virus, but that dosnt prevent you from contracting a differet variation)
Or, another way to put it is that having some funds put away dosnt stop you from having a blowout on your tire, but having the funds to replace the tire stops you from having to get a payday loan or credit card to pay for it, and while you’re still paying off the loan or cards you then get sick for a couple of days and miss work and get behind on your debts due to short paychecks.
How To Build Savings
First, if you constantly find yourself at the end of each month at a net zero, or even at a negative then it is imperative that you control your spending. Some of the simplest ways to do so are to find cheaper alternatives or to do things yourself.
I already harped on getting snacks or drinks from the gas station, and also harped on fast food. By changing nothing but where you shop you could easily save yourself 5% or more of your income outright. The energy drink from Walmart tastes just the same as the one from the gas station.
If you really want to make some budget (and health!) improvments then cut fast food out completely (or at most rare occurances or only with coupons) the same meal from fast food that costs you $5-8 per person might cost you $2-3 per person at home.
Another way to think about savings it to compare a purchase to another one, also known as opportunity costs. As someone the likes to play video games in their free time a very powerful way for me to put things into perspective is what I call the ‘video game equivalent’. A brand new game typically costs $60. A meal for two at a fast food place might cost you $20. Hell, a used game might cost you around $20 so we can use that comparison too. Which of these two purchases will give you greater pleasure in the long run? You can eat that burger, fries and drink and you will feel great for a while, but by the end of the day you will be hungry again. A game can give you many, many, many more hours of entertainment than the fast food. It’s a strange way my brain works and hey, if video games aren’t your thing then just compare it to something else you love.
The single best way to generate your savings is simply to pay yourself first. Quite literally it means that the day you get paid, take a portion of that income and put it immediately into a savings. Nothing fancy, just don’t touch it afterwards.
The last option would be to look into certain apps that connect to your bank. Apps like Stash or Acorns allow you to automatically withdraw cash from your checking account and put it in an account with those apps and they invest the cash for you. On top of that, some apps, specifically Acorns, will analyze your spendings and round up all your expenses to the next (not the nearest, the next) dollar and it will harvest the pennies and invest them for you. For example, you head to walmart like I mentioned to get a drink for work. It costs you, say, $3.18. Acorns see’s this purchase and it rounds your purchase to $4 and collects the $0.82 difference to invest. Sounds like a really small amount, and it is, but if you make a lot of purchases then with time it will add up, especially if you otherwise can’t seem to find a way to put money aside.
There are many ways to save, some more effective than others but by whatever means you manage to do it, every penny saved is a penny earned, and more!