If we want to cultivate healthier financial habits and stash away some money for our emergency fund, retirement, your children's college educations as well as that elusive worldwide vacation, there's no better time than the present to get started.
I often think of the old Chinese proverb that says "The best time to plant a tree was 20 years ago. The second best time is now."
I certainly cannot go back to my late twenties now that I am in my late forties and start Paying Myself First back then. I cannot go back those two decades and go for an IT certification where I could have worked mostly on my own and mostly from home making more money than I do now where I am constantly working with others, sitting in endless meetings, constantly responding to emails, texts and Facebook messages and on the phone for hours every day.
But I can become a better saver, and I suspect that you can too.
If we are striving to become better savers, we must act fast and start adopting some new financial patterns. Because as tempting purchases come up, chances are we may forget our vows to save more money this year. If you're going to join me and commit to a more frugal lifestyle and eliminate our past budgeting mistakes, experts suggest following these steps.
First and foremost and I cannot write or say it enough, Pay Yourself First. Treat your savings funds like any other bill. You wouldn't want to fall behind on your mortgage, would you?
Sometimes falling behind on payments happens, but you would not do it intentionally.
It is imperative to apply that same type of thinking with our savings. Along with our mortgage or rent, cellphone bills, insurance payments, food and other living expenses, a check to be deposited to your savings account, and hopefully a retirement fund, should be set aside each month. In my own case, I have taken to deposit funds into my Roth IRA upon every payday, twenty-six times per year.
The mentality of an exceptional saver focuses on how much cash coming in the door can be saved rather than spent. A diligent saver is going to find the money and put something away every month.
Automate
If you've heard it once, you've heard it a million times. Virtually every financial expert insists that automation works. Set up an automatic transfer with your bank so that every month funds are deposited into your savings account, your retirement fund, your kids' college savings account, your emergency fund and so on.
I have basically been able to save up over two hundred grand over a period of fifteen years to fund my children's college accounts while still sending some funds here and there to my wife's and my IRAs by this method. I still automatically contribute $400 to our daughter's 529 account on the first of every month. Our son is in his third year of college and enjoying the fruits of my labor and automatic investing every month for many years.
When you automate the payments to your savings account, you won't forget to make them. If you use automation and can learn to ignore the Joneses, you may be surprised to see that your funds will grow more quickly than you may think.
Embrace delayed gratification.
Diligent savers do not necessarily make a ton of money. They just save a lot.
They have learned to delay gratification and understand that compound interest is the eighth wonder of the world. Anybody can do it. To compound successfully, you need perseverance in order to keep yourself unflinchingly on the savings path.
As one of my top-ten favorite money bloggers Tweeted a few days ago:
\
Of course, we also require the most precious of commodities: Time. We require time to allow the power of compounding to work for us. Again, I can attest to this from experience, as the funds that I sent to one of my daughter's college funds has more than doubled, rising over 125% over a period of years, primarily the result of reinvesting dividends.
More Than You Think
There are more exceptional money savers out there than you might realize. They're your neighbors who drive old, beat up cars. They don't take lots of fancy vacations or own a boat. They have a simple but happy life. They derive pleasure from knowing they're saving for retirement, college and so on.
One of my favorite personal finance books and one of the first ones that I read (my late grandfather insisted that I read John Bogle's book Common Sense on Investing to get me started eighteen years ago) is The Millionaire Next Door by Thomas Stanley and William Danko.
Some of the key takeaways of this book via The Simple Dollar blog is:
First, people who accumulate wealth are usually quite frugal and rarely flaunt their wealth; people who flaunt their wealth rarely have much in the bank. For the most part, people with actual money in the bank are frugal people; people who aren’t frugal are usually scraping bottom.
Second, one of the best ways to accumulate significant wealth is through self-employment and entrepreneurship. In many ways, The Millionaire Next Door was a big initiator of my career shift into self-employment. It really made me think seriously about how I could start working for myself and enjoy a lot of personal flexibility along the way.
Finally, financial success comes not just from money management, but from how you live your life as a whole. Your relationship with your wife and children is vital. Your relationship with friends and coworkers is also vital. Your ability to set personal goals is also vital. The car you drive, the neighborhood you live in … the list goes on and on. All of these things (and many other elements of life) are intimately connected to your ability to accumulate wealth.
Don't accumulate more debt
Too much debt, like revolving credit card debt, weighs you down and keeps you from having extra money to put into savings. In fact, what should be incentive to dig yourself out of debt, particularly credit card debt, is how much more money you'll have to put toward your savings.
Paying off credit card debt is one of the best investments anyone can make. Paying off credit card debt at typical interest rates effectively makes an investment that returns 15 to 20 percent per year or whatever usurious rate your lender charges.
Start saving small amounts
You don't become a prolific saver overnight. For many people, it would be too risky and impractical.
If you start investing too much of your paycheck into savings and retirement, you might find yourself continually broke and then perhaps reaching for your credit cards. The key is finding a consistent amount that you can live with. Continue paying your bills, enjoying your life, taking care of your family if you have one and even saving up for or taking that vacation. Nobody can live a fulfilling life if all you do is work, eat, sleep, save money and repeat.
Even though I read and think about personal finance every single day, write about it every few days and have lost many a night of sleep over it, I concede that there is far more to life than money which, at its core, is simply a means of exchange.
Some personal finance experts recommend allocating twenty percent of your take-home pay toward financial goals, such as retirement or debt repayment. With that budgeting approach, known as the 50/30/20 budgeting rule, you would commit fifty percent to living expenses and thirty percent to flexible costs, like entertainment, vacations and birthday gifts.
So, if you ascribe to the 50/30/20 rule, plan to set aside no more than twenty percent of your income for long-term savings.
Less Flash, More Cash
People who are extremely good about saving money tend to not be overly concerned with their image. You won't often see exceptional savers living in large houses, driving fancy cars or wearing designer clothing. They don't try to keep with up with the Joneses. In fact, they don't even care about the Joneses. They care about themselves, their security, their future independence and their values.
Are you going to become one of these folks?
I often think of the old Chinese proverb that says "The best time to plant a tree was 20 years ago. The second best time is now."
I certainly cannot go back to my late twenties now that I am in my late forties and start Paying Myself First back then. I cannot go back those two decades and go for an IT certification where I could have worked mostly on my own and mostly from home making more money than I do now where I am constantly working with others, sitting in endless meetings, constantly responding to emails, texts and Facebook messages and on the phone for hours every day.
But I can become a better saver, and I suspect that you can too.
If we are striving to become better savers, we must act fast and start adopting some new financial patterns. Because as tempting purchases come up, chances are we may forget our vows to save more money this year. If you're going to join me and commit to a more frugal lifestyle and eliminate our past budgeting mistakes, experts suggest following these steps.
First and foremost and I cannot write or say it enough, Pay Yourself First. Treat your savings funds like any other bill. You wouldn't want to fall behind on your mortgage, would you?
Sometimes falling behind on payments happens, but you would not do it intentionally.
It is imperative to apply that same type of thinking with our savings. Along with our mortgage or rent, cellphone bills, insurance payments, food and other living expenses, a check to be deposited to your savings account, and hopefully a retirement fund, should be set aside each month. In my own case, I have taken to deposit funds into my Roth IRA upon every payday, twenty-six times per year.
The mentality of an exceptional saver focuses on how much cash coming in the door can be saved rather than spent. A diligent saver is going to find the money and put something away every month.
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| Source: Unitus Community Credit Union |
If you've heard it once, you've heard it a million times. Virtually every financial expert insists that automation works. Set up an automatic transfer with your bank so that every month funds are deposited into your savings account, your retirement fund, your kids' college savings account, your emergency fund and so on.
I have basically been able to save up over two hundred grand over a period of fifteen years to fund my children's college accounts while still sending some funds here and there to my wife's and my IRAs by this method. I still automatically contribute $400 to our daughter's 529 account on the first of every month. Our son is in his third year of college and enjoying the fruits of my labor and automatic investing every month for many years.
When you automate the payments to your savings account, you won't forget to make them. If you use automation and can learn to ignore the Joneses, you may be surprised to see that your funds will grow more quickly than you may think.
Embrace delayed gratification.
Diligent savers do not necessarily make a ton of money. They just save a lot.
They have learned to delay gratification and understand that compound interest is the eighth wonder of the world. Anybody can do it. To compound successfully, you need perseverance in order to keep yourself unflinchingly on the savings path.
As one of my top-ten favorite money bloggers Tweeted a few days ago:
Everyone complains that Financial Independence is only for people with very high incomes.
It’s not. Because really it comes down to honing a rare skill, that is equally difficult to learn for most:
The skill is deciding NOT to buy it, even when you DO have the money for it.
Of course, we also require the most precious of commodities: Time. We require time to allow the power of compounding to work for us. Again, I can attest to this from experience, as the funds that I sent to one of my daughter's college funds has more than doubled, rising over 125% over a period of years, primarily the result of reinvesting dividends.
More Than You Think
There are more exceptional money savers out there than you might realize. They're your neighbors who drive old, beat up cars. They don't take lots of fancy vacations or own a boat. They have a simple but happy life. They derive pleasure from knowing they're saving for retirement, college and so on.
One of my favorite personal finance books and one of the first ones that I read (my late grandfather insisted that I read John Bogle's book Common Sense on Investing to get me started eighteen years ago) is The Millionaire Next Door by Thomas Stanley and William Danko.
Some of the key takeaways of this book via The Simple Dollar blog is:
First, people who accumulate wealth are usually quite frugal and rarely flaunt their wealth; people who flaunt their wealth rarely have much in the bank. For the most part, people with actual money in the bank are frugal people; people who aren’t frugal are usually scraping bottom.
Second, one of the best ways to accumulate significant wealth is through self-employment and entrepreneurship. In many ways, The Millionaire Next Door was a big initiator of my career shift into self-employment. It really made me think seriously about how I could start working for myself and enjoy a lot of personal flexibility along the way.
Finally, financial success comes not just from money management, but from how you live your life as a whole. Your relationship with your wife and children is vital. Your relationship with friends and coworkers is also vital. Your ability to set personal goals is also vital. The car you drive, the neighborhood you live in … the list goes on and on. All of these things (and many other elements of life) are intimately connected to your ability to accumulate wealth.
Don't accumulate more debt
Too much debt, like revolving credit card debt, weighs you down and keeps you from having extra money to put into savings. In fact, what should be incentive to dig yourself out of debt, particularly credit card debt, is how much more money you'll have to put toward your savings.
Paying off credit card debt is one of the best investments anyone can make. Paying off credit card debt at typical interest rates effectively makes an investment that returns 15 to 20 percent per year or whatever usurious rate your lender charges.
Start saving small amounts
You don't become a prolific saver overnight. For many people, it would be too risky and impractical.
If you start investing too much of your paycheck into savings and retirement, you might find yourself continually broke and then perhaps reaching for your credit cards. The key is finding a consistent amount that you can live with. Continue paying your bills, enjoying your life, taking care of your family if you have one and even saving up for or taking that vacation. Nobody can live a fulfilling life if all you do is work, eat, sleep, save money and repeat.
Even though I read and think about personal finance every single day, write about it every few days and have lost many a night of sleep over it, I concede that there is far more to life than money which, at its core, is simply a means of exchange.
Some personal finance experts recommend allocating twenty percent of your take-home pay toward financial goals, such as retirement or debt repayment. With that budgeting approach, known as the 50/30/20 budgeting rule, you would commit fifty percent to living expenses and thirty percent to flexible costs, like entertainment, vacations and birthday gifts.
So, if you ascribe to the 50/30/20 rule, plan to set aside no more than twenty percent of your income for long-term savings.
Less Flash, More Cash
People who are extremely good about saving money tend to not be overly concerned with their image. You won't often see exceptional savers living in large houses, driving fancy cars or wearing designer clothing. They don't try to keep with up with the Joneses. In fact, they don't even care about the Joneses. They care about themselves, their security, their future independence and their values.
Are you going to become one of these folks?
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