How To Save Money: Intro
Hello dear,
Today, I’m excited to begin our “Saving Money” series! A collection of 14 letters with practical tips on saving money. Each letter delivered Tuesday.
As we said on letter #1, every finance tip falls into one of 3 categories; saving, investing, and making money.
So why focus on saving money first?
Because, in my humble opinion, it is the most important one.
Learning how to live a great life on as little as possible will simplify your path towards financial independence.
Remember letter #4? We saw how long you’ll take to retire depending on how much you save.
Let’s assume you’re saving 5% of your income. That means you’ll retire in 66 years. Is this what you want?
Most financial advisers will tell you to save 10%. That means you’ll retire in 51 years. Which is better, but meh.
Our goal here is to get you closer to retire 17 years from now. To do that, you need to save around 50% of your income (or make much more than you’re making now).
17 years is much, much better than the majority (of course, you can always do it in less time, but that’s where these guys come in). And anyone can do it!
So let’s begin.
Tip #1: Automatically save 15-20% of your income every month, now.
I can hear your “whaaaaat?” from across my screen. Breathe.
Recognize, there are only good reasons for doing this.
Almost any amount beyond minimum wage allows for savings. This is just a nice goal. A starting point. Besides, the only reason I said “15%” is to give you a cop-out, you should really aim for 20%.
The key word here is automatically. As soon as your paycheck comes in, 20% goes straight to someplace more useful (debt, savings, or investing).
So, if you’re making $4k every month (slightly below average), $800 is automatically deducted. Of course, you can live on $3,200 per month.
If you commit to doing this every month, three magical things happen:
- Your starting point is better than most financial advisers, who’d tell you to save 10%. So you’re already twice as good.
- You gain this “guarantee” (like some sort of cosmic contract) that you’ll be done with work 37 years from now give or take. How old are you now? How old will you be in 37 years?
- You’ll instantly adjust your lifestyle and notice you didn’t need that much money after all. Seriously, this will free you.
Win-win-win.
“You have to make your savings automatic. As Burton Malkiel told me during our visit, ‘The best way to save is when you don’t see the money in the first place.’ It’s true. Once you don’t even see that money coming in, you’ll be surprised how many ways you find to adjust your spending.” Tony Robbins
Change is possible
Think 20% is too hard? Remember the story of Theodore Johnson.
Theodore was a UPS worker who never made more than $14,000 per year. Yet in his old age, he was worth $70Million!
Read that again.
“How?!” you ask.
Every month, he’d save 20% of his paycheck (about $230) and invest it into the stock of the company he worked for, UPS. For yeaaaars.
“Oh but he’s lucky UPS’ stock kept going up!” you say. That is true, but missing the point.
Theodore proves you don’t have to have a high income to be rich. As long as you have the discipline to save every month, invest it well, and are patient, you’ll get there.
It also proves that even for someone living on $1,200 a month, learning to live on 80% of that amount has HUGE long-term benefits.
Start now. Honestly, the mental and financial upside is too great not to do it.
This is not just about frugality
At least not in the way most people think about it (like clipping coupons, dividing toilet paper in two, and getting your protein for free from roadkills).
Of course, we do talk about spending less. But only because in order to be rich you either need to earn much more than you spend, or spend much less than you earn.
The thing is, not everyone wants to work extra to make more money, and we can’t all invest in a lucky stock, but we can all control how much we save and live on.
Why? Just for the sake of being frugal? No.
The way I see it, here are 3 better reasons.
1. It’s about achieving your goals faster
The more expensive your lifestyle, the more you’ll have to earn to retire.
This is like fighting an uphill battle. But, by spending less you’ll make the hill shorter, and shorter, and shorter until it’s a straight road.
It’s simple math.
Think about it, if you spend $4,000 every month, you’ll need to have $1,200,000 in investments before you can retire.
But, if you read this post and automatically save 20% (therefore spending $3,200 every month), instantly you’ll only need $960,000 to retire.
That’s $240,000 less! Not only that, you’ll retire 29 years before the average person.
With one change!
2. It’s about efficiency
In this series, we don’t talk about finance from a place of “how much more can we save??? Save save save more more more!”
Again, this isn’t about being cheap. This is about being efficient.
Look, you have the luxury of reading this blog. You already live in an abundant world (don’t believe me? Watch this trailer).
If you have a roof over your head, running water, a phone, internet connection, and food every day; everything else you think you need came from marketing.
Take for example, Will McAskill (the youngest associate philosophy professor in the world). He pledged to donate anything he makes over $36,000 per year to charity. Why? Because you don’t need much more than that.
On the other hand, if you’re spending money out the wazoo by driving an expensive car (loaned), living in an apartment with a “guest bedroom” that’s used once a year, and have a closet full of crap you don’t use; you’re not efficient.
We’ll remedy that.
“Saving isn’t deprivation. That money is still spent. It’s just not spent on a Mercedes or a big house. It’s spent on the future. Saving is money spent on buying freedom.” — JL Collins
3. It’s recommended across the board
There’s a reason why ginormous companies like Y Combinator and Amazon recommend “frugality” as one of their core principles.
This skill will trickle down into all aspects of your life. Once you learn to be frugal at home, you’ll need less money for everything else! Whether that’s starting a business, traveling, starting a family, etc…
Besides, the mental benefits of knowing how little you need to live are priceless.
Learning to live efficiently will positively influence all aspects of your life.
By now, I’m sure you have questions, let’s answer them.
Q&A
How do I get more motivation?
It helps to have a goal and a clear picture of when you want to achieve it.
If you say “right now I’m making $50k a year, but I want to retire 17 years from now” you know the goal then becomes “save 50%”, which turns into “ok how can I live on $2,000 a month?”
- I should probably stop eating at restaurants
- I should probably find some roommates
- I should probably sell my expensive car and buy a used $5k car
- I should probably stop buying so many damn clothes and new Apple gadgets
- I should probably walk or bike to work
- etc… etc…
Starting with the goal in mind will make sense of all this hodgepodge.
If you need a role model, here’s Yahoo finance’s 3min episode on Mr. Money Mustache. See? Having a great life on $25k a year for a family of four is possible.
What do I do with the money I saved?
Well, the short answer is “invest it”.
Where? Low-cost index funds.
If you have no idea what I’m talking about and how to do it, rest assured, I have two suggestions:
- You could wait 14 weeks. This is when I’ll begin my “Investing Money” series.
- Can’t wait? Read JL Collins’ stock series or his book. Those are the best resources on investing I have ever read and will answer all your questions.
Should I budget?
It depends.
I’m not a big fan of budgets, and neither are my favorite financial bloggers.
Not that there’s anything wrong with them (other than giving you permission for “miscellaneous spending”), but it’s just… work.
If you don’t mind updating your budget every month, go for it. In fact you should check out youneedabudget.com to make things easier.
But know that it’s not absolutely necessary (no matter what a lot of personal finance “gurus” tell you).
However, you should track your money and know where every penny is going (like Scrooge McDuck). The most popular software for this is Mint.
Why? Because you’ll be aware of things like fraud, or sneaky companies raising their prices without any warning.
So, whether you budget or not depends on you. But tracking everything is incredibly important. Thankfully, companies will do that for you automatically.
And that’s it for today!
Well dear, today you learned the first money saving tip: automatically save 20% without even seeing it. A future you will happily live like that money never existed.
Let me know how it goes. Trust me, it will be easier than you think.
See you next week (follow the series here to be notified).
Be well.
R
P.S.: As I was finishing polishing this post, Personal Finance Series reached 2k followers! This is insane. Thank you so much! It’s good to see our movement growing so fast.
P.P.S.: As a big thank you, I want to start experimenting with new ways to help. Which is why if you want help with your finances, you can send me an e-mail directly at richardreeze1@gmail.com. I’ll take a look at your finances (anonymously if you want), and try to find ways to help you achieve your goals (whether it’s getting out of debt, retiring early, or whatever you want). This is similar to Mr. Money Mustache’s “Reader Case Studies”. Big bonus if you live in an expensive city like San Francisco, if I can help you I can help anyone.
Thanks for reading! 😊If you enjoyed it, test how many times can you hit 👏 in 5 seconds. It’s great cardio for your fingers AND will help other people see the story.You can follow me on Twitter at @richardreeze to find out whenever others just like it come out.📚 Do you like books? If so you might enjoy my latest obsession:
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Since I write about finance, legal jargon is obligatory (because the guys in suits made me). Before following any of my advice, read this disclaimer.
