Money is a medium of exchange. Money is used to pay for stuff. It is a basic way by which we get by in the world. So based on this simplistic view, you will realize that humans have been spending money for thousands of years. But unfortunately we can’t say the same about the habit of saving money.
It has become more difficult for you to save your money because other things are competing against that ritual. Such as, your needs, wants and wishes, and sometimes fears, and finally, YOU!
The very best way to look at money is not just a resource earned and dispensed at will. Money should be seen as a tool for making more money today, and a path for becoming free from the money troubles of tomorrow.
Best Time To Save Your Money
I always say the best time to save money was yesterday. It’s a fact that money placed in an accumulation venture will grow over time. 24 hours may not seem like enough time. If you take a closer look at your calendar, you will realize that each year is broken into months. Each month is divided into weeks, and there are seven equal days in a week.
When money is saved and starts accumulating interest on a Monday for instance, it doesn’t take the weekend off. Your bank inclusively counts all the days on the calendar including weekends.
Therefore, a $1,000 saved and then invested in a 10% return instrument will produce $100 in interest at the end of the period. This technically means that your $1,000 earned about $8.33 in a day. This may not seem like much. But it’s a nice approach for you to understand and respect the time value of money.
When this process is rolled over, the rollover effect will keep adding the interest to the starting capital amount and this is called compounding. Albert Einstein often said compound interest was the eighth wonder of the world. He who understood it earned it, he who didn’t paid it – quite literally.
This is a good foundation upon which we will find motivation to save. We must live within our means to be able to save more, and also selecting better investments will guarantee our financial freedom going forward. Beware of that comfort zone that advocate living life for today – letting tomorrow hand its own woes.
Pay Yourself Second
One of the most important virtues of saving money for the beginner is the adage, pay yourself first. This idea has been circulating for centuries. Many books suggest a prescribed percentage of 10%. This has been proven to work perfectly over the years, and has brought financial independence to countless practitioners.
On the flip side, how about paying someone else first? Who you might ask? Give God a tenth of everything you earn. In Christian circles, this is known as tithing. Tithing hadn’t been a strong component of wealth accumulation among the masses – until now.
The activity might have a different name or purpose to you, but you probably do it unconsciously or intermittently. When you give to charity or the needy, you are actually tithing. If this giving threshold is at least 10% of your income.
Tithing is no longer for covenant Christians only. It’s certainly not just a donation for a pastor or church. (Jesus once said that whatsoever you do unto others you do unto me. – Matthew 25:45)
Giving the first 10% of your income to a worthy cause well lubricate the unseen realm and bring all your personal investments and ambitions into a universal alignment for greater wealth.
This principle has worked for many countless practitioners. It will work for you also. You will need all the leverage you can get when it comes to accumulating wealth. Don’t limit yourself to only financials. Delve into the supernatural and tap into ideas that have certainly work for people of yesterday and today.
Pay Yourself Next
Next, you have to pay yourself second. Pay yourself double the amount you give to charity. This can be 20% or even higher depending on your existing budgeting arrangement. This new amount that you keep and invest will begin to accumulate through the law of compounding. It will produce profits over time as you keep adding to it at the end of each paycheck. You will need a goal amount in mind to work towards early retirement perhaps.
By now, you’ve noticed that 30% of your income has been sent out to work for you. They are not lost. All 30% are working hard in a parallel assignment towards your financial freedom. 10% of that is operating in the invisible, while the other 20% is invested in the visible realms of finance. Another miraculous component I need to mention here is that, your 70% balance will eventually be more than enough to cater for your general living expenses over time. Your 30% will hardly be missed.
Furthermore, to prevent the whole process from taking a toll on you, you’ll need to apply some automation. Automating your finances will bring you peace of mind. Have a basic standing order (or direct debit) facility in your bank account. This will effectually deduct the calculated percentages from your bank account and forward them to the church or charity of your choice; and then also to the investment funds for building long-term wealth.
Build An Emergency Fund
Finally, build an emergency fund. This is your rainy day fund used to cushion you from unpredictable economic or financial uncertainties along the way. Many financial gurus encourage the use of these funds as a great backup policy. Others are not so fond of it. The latter believe that if you concentrate on negative unforeseen financial risks, you are eventually going to attract one.
Our primary need and use of our emergency fund it to protect our existing investments. The fund will do just that, although indirectly. Your investments are made up of your hard earned money that have been meticulously saved over time, and have probably earned lots of gains. We need to shield it from all forms of exit pressures, and possible withdrawal demands from YOURSELF.
The Emergency Fund will provide two (2) core ways of doing this:
1) The Emergency Fund will provide 3 to 6 months reserve of living expenses.
Above the 30% initial deduction discussed previously, you can put aside a little amount each month. Ranging from just $100 or above, depending on your current income and circumstances.
Calculate how much you spend in total each month. You could also simply multiply your after tax income per month by 3 or even 6. Save up persistently into a money market fund such as: Cash, and Cash Equivalents, U.S. Treasuries, or other short-term maturity securities.
In the event of a loss of income or unemployment, you can withdraw money to pay for your living expenses until you get a new income source. This strategy will keep you from disrupting your primary investment nest egg that shouldn’t be disturbed over the years in which you are compounding wealth.
2) The Emergency Fund will also be able to give you a lump sum that can pay for larger unforeseen expenses, liabilities, etc. (For example, Medical Emergencies, car or home repairs.)
If such a fund is not in place, you will be tempted to make a withdrawal from your stocks or long-term investments. You may have to sell a depressed stock that has taken a temporary dive, and you lose out on recoveries and future gains.
You don’t want to get wiped out when a preventive strategy like an Emergency Fund is available for you to use. It is still your money. Your pride and joy that will boost your assets when you calculate your overall net worth.
Start accumulating funds into an emergency account, and treat it with a lot of respect. Do not make any kind of justifiable withdrawals from this account for any other purpose – except that which it was setup for.
Pay Off Your Debts
Finally, you will have to pay off your debts while saving. Your mission is to get to financial freedom as quickly as you can. Among the various debt repayment strategies that are in use today, continue to pay down debt until it’s completely wiped out.
- Cut back on spending (stop digging this hole and trim your budget to free up money)
- Pay the smallest debt as fast as possible
- Start paying the minimum payments on the other debt(s)
- Then pay that extra toward the next largest debt in the list
- Work overtime or get a second job
- Start an online side hustle
- Stop comparing yourself to others
- Stay out of debt by saving towards your needs and wants.
This doesn’t sound like a comfortable place to be in. But this is a noble path well traveled by many who have achieved financial freedom. Your passive income will eventually produce far more cash flow to sustain your living expenses even before you reach the retirement age.
Strategies That Will Make You Money
To increase your chances of early retirement and financial independence, you will have to add more cash to your investments. This will grow and compound silently in the background. If you earn more money or cut your personal and family expenses further, remember to allocate it for further investments – and not for consumption.
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Trimming Your Budget
You need to cut back on your spending. Whether you feel you’re over spending or not. Some people may have a standardized lifestyle. They don’t think they have much to trim. This could be because they may be comparing themselves with others.
If your neighbor’s profession or career and income are similar to yours, you could feel entitled to have the same kind of stuff they have. The unfortunate thing is that your neighbor might be getting a stimulus from their parents or in-laws that you do not know about. Maybe they’re also keeping up with the Joneses; living above their means and setting themselves for financial failure.
Start by identifying your needs, wants, and savings. Understand these three (3) sections in your budget. You need to make a budget such as The 50-30-20 Rule Budget. Outline also all your needs, wants, and savings needs. Many items from the wants (luxuries) section can be trimmed slowly over time. It will create room for more money to be diverted into your savings – for further transfer into investments for financial independence.
Working Overtime
As far as you are concerned, no one in your family has ever drowned in their own sweat. And you are certainly not going to be the first. Until we create the leverage of working smarter, we have to no other choice today except to work harder.
Work more hours if your employer has an overtime arrangement. Position yourself as someone working towards a financial goal. Do not see yourself as an over-worked donkey with no life. This will cut your energy levels. You are working towards a powerful and noble goal.
Without this strong intent, you might even end up wasting all your overtime income on therapeutic shopping and vacations. Don’t waste your money trying to compensate yourself in any way for the extra layer of stress that your additional job has brought upon you.
All extra income earned must be immediately allocated. By this time your automation system should be working fine to catch money deposited in a central bank account. A checking account, and a savings account will both serve their purposes in your personal finance system.
Send the new income stream forth as loyal slaves to build the savings and investments. Be mindful also about giving away your initial 10% outlined previously. It will be the oil that will lubricate your efforts with joy and gratitude to produce outstanding results at work. Your new disciplined self, and overall focus, will eventually be noticed and rewarded by your employer.
Side Hustles
While you work a full-time job, you could easily build another stream of income. A side hustle allows you to keep working, but can potentially grow to replace your original hustle. This is a good thing and will keep you motivated and fulfilled while building your investment next egg.
A few side hustle ideas that can make a difference in your cash flow are:
Online Hustles
- Sell on Ebay or Facebook Marketplace
- Manage social media for a small biz
- Sell services on Fiverr or Upwork
- Start a blog
- Create an online course
- Write an ebook
- Create an audio book
- Create tutorials on YouTube
- Try freelance writing
- Do affiliate marketing
- Become a virtual assistant
- Edit videos
- Design logos
Offline Side Hustles
- Drive for Lyft or Uber
- Deliver for Postmates
- Rent your spare room on Airbnb
- Become a personal chef / food truck
- Walk dogs or do pet grooming
- Babysit or become a nanny
- Clean houses
- Do a garage sale
- Teach a language
- Give music lessons
- Give driving lessons
- Become a local tour guide
Strategies That Will Help Save Your Money
As you grow your savings and investments, you must also cut the heavy expenses that hold you back from the path. Frugality will help you keep an eye on the small details that make a big difference over time.
This is a small price most wealthy people have to pay to achieve a state of sustainable financial freedom. You don’t need to be stingy or grumpy. You will just pick resourceful habits that will save you thousands of dollars each year.
Some Frugal ideas worth mentioning here are:
- Take advantage of loyalty programs.
- Consider renting over buying.
- Track your expense (Mint or Wally)
- Stop monthly subscriptions
- Avoid carrying too much cash or credit
- Create a strict shopping list
- Avoid expensive restaurants and bars with friends
- Book travel during off-season
- Buy second-hand items
Conclusion: Money Saving Strategies
There are still people out there who believe that you can drink your latte and still have it. Penny pinching doesn’t just save pennies. The habits of looking after your personal finances with a keener eye will transmute into a shrewd mindset that understands investing a little better, analyzes facts much deeper, and makes rational investment decisions.
When you save money, you are not only saving money. You are also saving yourself from marching with the blind herd into the slaughter house – of a difficult retirement. Because the act of saving money in itself builds discipline that you can harvest and re-cultivate in other areas of your life.
So comment below if you are a brave money saver, or a braver money spender – believing that life should be spent without barriers or limits to enjoying the pleasures of the here and now. Share your unique mindset here.
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