How to Save a Million Bucks
| Photographs By GaudiLab
It’s funny — everyone wants to be rich, but nobody wants to save. It’s like everyone thinks they can live the life while they are young, and then a pot of gold producing 10% free cash flow per year will be waiting for them years later! Unfortunately, that is not how it works, folks. In order to start getting rich, you need to be thinking of your finances constantly. As we will describe, savings alone will not make you anywhere close to rich. However, they are a first essential to building wealth.
Start. START. START!
Interestingly enough, people always ask me, what is the first step, how do I even get started saving? This drives me crazy! You just start! But then I also realize that for some who are working, their monthly paycheck leaves them with nothing at the end of each month for savings, which does make it literally impossible to save, so I see the concern. This leads me to my next point.
You can’t just plan. You need to plan EXACTLY.
If you are in the middle of the grind right now, and you realize that your income minus your expenses leaves you with no cash at the end of the month, do not be ashamed, but do understand that this is not OKAY, and not WORTH IT. If you are just making a living like this, then there is no goal and you’re stuck in a cycle.
The real issue is that most people are not even at this realization. They work and spend and work and spend with no thought to their finances whatsoever. So realizing that this is a problem is the first important step.
Next, here’s what needs to be done in order to SAVE REAL MONEY. Let’s get started — it is quite simple, actually. First, look at your current AFTER TAX income. Let’s say you bring in $3,000 per month after taxes. How do you find this number? Well, you can calculate your tax rate and deduct it from your gross income (listed on your work contract), but that can be complex, as you need to look at federal, local and potentially city tax rates. However, you can also simply look at the amount your company deposits into your bank account each month (usually twice per month).
Then let’s calculate your current expenses. Let’s say you spend $1,800 per month in cash. Now, take a look at ALL your expenses to calculate this. To name some big ones: rent, food, loans (student loans, car loans), gas, utilities, “enjoyment” expenses, health-care costs, and other random costs that may come up. Make sure it is accurate and conservative.
In this example, we are left with $1,200 at the end of the month. How do you keep track of this? Well, you should have the exact amounts that you need for savings and spending deposited into individual accounts. So, once you have determined that your expenses are roughly $1,800, you should have that much deposited into a checking account, and the remainder of $1,200 will automatically be deposited into a savings account.
In this example, you would automatically save $14,400 per year and in just 3 years, assuming no investing (we’ll get to that below), you would save $43,200! At that point, you would feel pretty comfortable, as your savings could pay for any emergency expenses (losing your income, or health-care expenses).
Don’t Save. Save and INVEST.
Now as a very important point, we want to note that it is very difficult to accumulate a lot of wealth if you are not INVESTING your savings. This is due to two reasons; one is inflation. (Basically, if prices rise, your money will buy less, so it will be worth less in reality even if you have the same amount saved.) Two, investing uses compound interest to build on your investments in an exponential fashion. Bottom line, it makes no sense not to invest your savings.
Small steps followed by large steps
Note that this will take time, and your steps should compound over time. This should be due to an increase in your income. It’s very important to know that saving alone will never make you rich; you need to focus on saving at first to make it a habit, but then your full energy should be spent finding ways to grow your income. Can you find a way to make $1,000,000 in one year? It will be IMPOSSIBLE not to save if you do that, so that is the real question. Good luck!
The views expressed in content distributed by Newstex and its re-distributors (collectively, “Newstex Authoritative Content”) are solely those of the respective author(s) and not necessarily the views of Newstex et al. It is provided as general information only on an “AS IS” basis, without warranties and conferring no rights, which should not be relied upon as professional advice. Newstex et al. make no claims, promises or guarantees regarding its accuracy or completeness, nor as to the quality of the opinions and commentary contained therein.
Licensed content is provided for informational purposes only, and is not intended to represent any endorsement, expressed or implied, by USAA or any affiliates.