Year after year, millions of people look into their bank account and see that they have no money in their savings, nothing to invest, and their future looks bleak at best. Does this sound like you? Well, if it does, it might be time to change the way you think about money. In this article, I will show how easy it is to save and how it doesn't take much to make a tremendous difference for you and your financial future.
I remember reading somewhere that 70% of millennials (ages 18 to 36) have less than $1,000 in their saving account. 10% of the millennial population have over $10,000 in savings, which may sound like a lot, but honestly, it isn't much. Imagine how fast you could spend that type of cash at the mall! The lack of money could be because this generation is struggling with debt. We have credit card debt, college loans debt, and most of us are behind on our payments. But I don't believe this is the problem. I believe the problem is that we never learned how to save our capital correctly. There were no classes in high school or college geared towards saving money, at least none that were required.
With a few useful and time-tested tips, I will help shed some light on how to increase your worth and raise your financial IQ.
Track Your Income/Spending:
Tracking how much you make is awesome. I have a journal in my room that I use to do this. Written on it from left to right is the date, the amount of money I made, where it came from, and a percentage system that allows me to see how much I can spend and how much I will be putting away. It sounds complicated and a little outdated, and it is, but I enjoy it. Later on, in this section, I will provide you with an easier way to get this done.
The not so fun part is tracking where our money goes, but it's important to do this for a couple of reasons. When we track where our money goes, we become more conscious of how much we're spending, and it forces us to think a little bit more about whether or not we need what we're buying. When you have to track where your money goes, all of a sudden a $60 juice fast doesn't seem like such a good idea anymore. The great thing about tracking how you spend your money is the ability to look back on it in the future. Being able to do this for weeks, months, and years at a time will give you a better picture of what your good or bad spending habits are and where your money really goes.
"What is easy to do is easy not to do." - Jim Rohn
While tracking where our money goes and comes from is easy, it rarely gets done. I guess the idea of carrying around a pen and a pad and whipping it out every time you want to make a purchase can seem a little annoying and bothersome to some people, and rightfully so. Even writing down how much money you make in a journal at home can cause stress. The good news is that I have a solution.
The great part about living in today's day and age is that there are apps for everything and anything we can imagine. Do a quick search for money journal or money diary in the app store and download any app that speaks to you and your taste. I personally use an app called MONEY JOURNAL by Aesthology (http://www.aesthology.com/money/). It's easy to use, and while it will be easy to do, the habit of remembering to do it and sticking to it will be the part where most of you will fail.
Pay Yourself First
Some of you might be scratching your head after reading that title. Well, stop! You might be earning money and maybe even quite a bit, but not many of you are paying yourself first. Most people spend that money on clothes, on a nice dinner for themselves, and on personal care, but none of that is considered paying yourself first.
Paying yourself first is taking a fixed percentage of every dollar you make and putting it away for your financial FUTURE.
When I say pay yourself first, I MEAN IT! When you decide on a fixed percentage, no matter what event is coming up for you, no matter what bills you have to pay, you never take away from that fixed amount. You're not going to die if you can't make it to that one concert and your life is not going to end if you're $50 short on your next credit card payment, but you will regret and have to work 10 times harder in the future if you don't follow this rule.
I recommend putting 10% of every dollar you make away into a hidden savings or investment account that you can not touch. The money in this account is for future investments only. Most people are pleasantly surprised at how much money you'll have at the end of the year. The best part? It feels good! Knowing that you saved some cash and that it's going to make you more money in the future (if you follow the rest of my tips!) feels amazing and empowering.
Live Under Your Means
You worked your butt off getting that promotion so that you could buy those fancy clothes, get that nice car, and go to Coachella every year in the latest gear... but guess what? I'm going to ask you to stop doing all that and go back to living life how it was before. WHAAAAAAT! (Lil Jon Voice)
This is an easy rule to understand. If you make $50,000 a year, live like you only make $40,000. If you make $100,000 a year, live like you only make $80,000. Living by this rule will be tremendously helpful for you in the long run. When you decide to buy a house, invest in your education, and go on that 3-month backpacking trip across Europe, you'll be glad you lived under your means and saved all that extra cash.
This will also ensure that any hidden surprises, such as owing more than you expected for taxes or breaking your leg and having to pay for x-rays and surgery, won't put you into a huge pile of debt. Yes, I'm basically asking you to play it safe and I know that's not fun, but no one is saying you can't live dangerously in other areas of your life. Go jump out a plane or go running with the bulls. Once you get used to living under your means, you won't even notice the difference.
Invest: Make Your Money Work for You
What's the point of saving all that extra dough if you don't put it to good use? Your hard earned savings is not supposed to collect dust, it's meant to be put to work so it can make you even more money. While this requires the most effort out of all the rules, it is the most beneficial, and it's the part that's going to set you up to be a millionaire in the future.
The goal is to invest your money into assets such as real estate, stocks, bonds, or business's that will earn you more income. Some of these methods take a little more energy and make you more money, like researching the right start-up company to invest in or the right house to purchase and flip. Others are meant for you to click and forget, like investing money into bonds or Vanguard index funds.
Investments are highly individualized and depend on your risk tolerability and how long you are willing to invest (short versus long-term). I suggest you do your due diligence and research what would be the best investment for yourself. No matter how much you saved and what you do for a living, make sure you invest!
Have your money procreate and make more money for you. Invest what you saved the following year, add it to the pile and let it keep multiplying. Eventually, the compound effect will kick in, and your fortune will SKYROCKET!
The Compound Effect
"Compound interest is the 8th wonder of the world" - Albert Einstien
The real secret to wealth is the compound effect. When you first start investing your hard earned savings, you get excited! You can't wait to see what you're new positive habit and choices are going to do for you. "I'm gonna be rich!" you think to yourself. Then you check your account and find out that it made a return of investment of only 5 to10%. Reality sets in, your fortune hasn't changed. Most people get discouraged and feel like it's not working, and they start regretting not spending that money going to Burning Man or buying that chinchilla fur coat they saw on sale at the mall. Don't fret; the compound effect is at work.
You see what happens is you keep putting the next years' hard earned savings in, and then that money makes another return on investment of 5-10%. You do this year after year after year, and 30 years later you look into your account and see that it has sky-rocketed and you are now a bonified multi-millionaire. While this all depends on how much you save, your choice of investments, and when you decide to start, the truth is that everyone can benefit from the compound effect.
Let's Put it All Together:
1. Track Your Income/Spending:
Download a money diary and start tracking how much you make and how much you spend. No excuses!
2. Pay Yourself First:
Start putting 10% of every dollar you make into a private investment account. Always pay yourself first, no matter what!
3. Live Under Your Means:
Pretend like you make 20% less than you make and live life like you make this much. It'll help in case of emergencies or when you want to make a big purchase.
4. Invest: Make Your Money Work for You
Take your hard earned savings and make sound investments so that you create additional income.
5. Compound Effect
Be in it for the long-haul. Keep investing and don't lose faith. Over time your investments, consistency, and patience will pay off big-time.
I hope you all enjoyed reading this article. Comment below and tell me what you loved or hated about this article the most!