Step 1 – Commit a percentage to save
Most financial experts recommend 10% -20%, but this decision is entirely up to you. Make the decision to put away a certain percentage and then automate it so you don’t even see it. This is the most important step! You can’t play if you’re not in the game.
“The secret of getting ahead is to get started” Mark Twain
Tony lays out three simple steps. Save more, earn more, and invest more.
Find ways to save money
Start a budget and analyze where your money is going. You will likely be surprised at what you find. If you spend 5 bucks on coffee every morning, that’s $1,825 a year that you could have saved and invested instead. Now I’m not saying to cut out the things you enjoy in life, like going to the movies, or buying a nice gift for someone, or going out to a nice meal, but see the big picture. What’s more important to you? A $5 coffee each morning or that $1,825 in savings? If you really want to save, there is always a way. Find a cheaper way and ask if this thing you are spending your money on is really serving you in a positive way. I am guilty of buying a $5 dollar coffee each morning, but I have (since reading this book) vowed to stop buying those and buy a cheaper alternative ($1) and save the rest. I basically asked myself, would I rather have this $5 coffee every day or have an extra $1.5K in my savings. The answer was pretty clear to me. These little habits don’t seem expensive but they add up very, very quickly.
I was also guilty of buying takeout every day for lunch and dinner, and sometimes even breakfast. First of all, this was costing me a fortune; secondly, the meal choices I could get on the go were not very healthy. Let’s look at breakfast for example. I would buy breakfast for about $8, but I could make that same breakfast at home for just $3 and it was much healthier. The same was true for lunch and dinner. I was spending a fortune on takeout every day. I still make room for takeout, but I do it in moderation. Do it for both financial and health reasons.
Food is just one area where people can usually save a lot. I understand we all like having nice things, but really ask yourself if you need that item before purchasing it. Do not impulse buy. Give yourself a week to think about it if it is a big purchase. And if you’re buying those designer shirts or jeans, I have nothing to say to you… You are basically paying for a name on a product, nothing else. Getting a quality product is something to strive for, but paying 10 times more just because it has a logo on it is a huge waste of your money. You’re financing their retirement, not yours. You are being brain washed by the world of marketing and advertisement. Having that $100 t-shirt doesn’t make you “cool”. Again, I must stress that I’m not saying to stop buying the things you love completely. Just practice moderation and be aware of where your money is going. It’s nice to have decent clothes and I’m not saying we have to go around wearing burlap sacks or anything like that. It’s simple, just make smarter purchases.
Find ways to earn more money
You’re not tied to your current job and you can always look for side work. Whatever you save and any additional money you earn should be sent straight to your savings/investments. Find something you are passionate about and focus on that part time. Find a way that allows that hobby to make you income.
If there is absolutely no room in your budget to save money now (but I’m sure there is), then consider the Save More Tomorrow Plan. In a nutshell, as you get raises, those raises go into your retirement savings and investments. There is no excuse to save here.
So, why is investing so important? I think we all know why. Obviously we want to secure an income for life. We want less financial stress. People are growing older so it is important to be able to stretch your retirement further out. The only way you will make enough money to support yourself will be to become an investor. You can’t just trade time for money anymore. Earned income won’t be enough to bridge the gap to financial freedom, so you need to invest. Consider the miracle power of compounding. Einstein once said “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.” Become an owner and investor in the market, not just a consumer. The bottom line here is, don’t work for money…. let money work for you!
If you can find a way to save 1000 dollars a month over 40 years at 8%, that’s 3 million dollars. In principal it’s only $480,000. That’s the power of compounding.
What are you investing for? We all want a permanent income, right? There is no point in investing just to have wads of cash sitting in your house when you die. We can’t bring the money to the grave, but I guess you could get a really cool looking headstone. Be clear on why you are investing and it will be that easier to stick to your commitments. If you aren’t saving for something, you won’t have any willpower to avoid wasteful purchases. More to come on what you are saving for in step 3, what’s the price of your dreams?
Like his book so far? Buy it on Amazon – MONEY Master the Game: 7 Simple Steps to Financial Freedom