I read a statistic the other day that said 57% of Americans would need to take on debt to cover a surprise $500 expense. Those same Americans would cast blame on a boss, who pays them too little. Or a government who taxes them too much. Saving requires self discipline as well as the ability to observe oneself.
Once you begin this journey to creating a large savings you will very quickly hit the $500 dollar mark. Remember that you are not saving to spend! You are saving to earn! More on that later.
First you must do the following. Say to yourself that a portion of all you earn is yours to keep. One of my favorite books, The Richest Man in Babylon, described the problem perfectly. The lesson is at such…
You earn money from working, you pay the grocer, you pay the banker, you pay the credit card companies, you pay your landlord and then pay others for various items. At the end you take a fraction of what’s left and pay yourself.
Reading is really one of the best ways you can begin to learn financial lessons. You will also need to practice what you read but reading is a great first step. A second book which grows on the lesson is Rich Dad Poor Dad.
The author, Robert Kiyosaki, tries to relay the teachings from his friends dad. His rich dad, as he puts it, would always pay himself first. He would take a portion of money he earned and put it in his own pocket before anyone else could get their hands on it. This is the first step in saving money. Once you can put money away before you pay bills you will always be growing your savings.
I would suggest reading both of those books, the audio books are practically free from those links. Even though one may be old it has a lot to teach us even in these modern times.
My personal recommendation is to take 10% of your income and pay yourself. Learn to live on the other 90% which I am sure you will find easy to do. If your fixed expenses, rent, phone, the bills that don’t change, are greater than 90% you must begin to work those down or find ways to earn more. I would suggest find ways to earn more, always earn never don’t.
The second part of this article is for after you begin to have a chunk of change in your savings account. I know, I Know that 1.8% APY looks “great” Hell that 2.5% five year CD looks even better right?
Now you must begin to think about your risk tolerance. A friend of mine has put a lot more money into the stock market than I have. He always complains about losses, I have constantly come to him with potential investments with which he has shot down as “to risky”. I on the other hand have researched the claims and found some strong evidence to warrant my position.
While my fund has grown 64% in the past year, my friends has shrunk 2%. He would stick his toes in and pull out at the first sign of a drop. What I am trying to get at here is know yourself. If you cannot stand the sight of money dropping than you may want less risk. There are some great online real estate investment programs that have a solid return with low risk, solid being 10-12% annually.
Learn to find your expertise, expertise minimizes risk. What may be a bad housing deal for me is a great deal for the contractor who can fix and flip it without having to pay a large markup and labor. Everyone has some area in which their personal skills bring value. If you operate within your expertise you will have an advantage and risk avoidance.
Another way to lower your risk is to seek the advice of experts. You wouldn’t ask your barber advice about housing loans but you would ask them about the current market for haircutting business. Seek expertise in those around you.
What ever investment you find to move your money into, the lesson is this, you need to move your money. Those savings accounts are losing you money at this point. There are so many ways you can take that money and make it earn money. Letting it sit in an account with a low return is just like losing money.
You need to begin to look at the world in an opportunity cost way. What am I losing by doing this. By thinking this way you begin to not only start making decisions that impact your future but also find creative ways to make some extra money.
First save, and learn about your skills. Next use your skills and your network to find avenues in which your money can make money.