Thursday, May 26, 2011

Saving is Easy

It never ceases to amaze me how difficult some people find it to save money when such an activity should be a fact of life. I believe many people assume that the only people who are able to achieve financial independence, and ultimately, a comfortable retirement, are those that are already wealthy or who have extremely high paying jobs. Nothing could be further from the truth!

Saving and investing money is inherently easy on any income and here's why: If you really want to save your money, you will. This boils down to psychology because some people simply do not want to save, even though they should to ensure a comfortable future.

How can this be accomplished? Try cutting out unnecessary discretionary purchases and using that money instead to fund a retirement account that owns a basket of index funds. At this point, many readers might question this strategy since we most often derive much of our satisfaction from these purchases, but it doesn't have to be difficult. Instead, rotate every week, month, or whatever time interval you've chosen to changing which discretionary purchase you swap out for savings funds. If you go out to eat 5 times in an average month, try going out 2 or 3 times instead. For a family of four, you'll likely save well over $100 a month using this strategy. If your family likes to go out to eat, why not go out to eat 5 times again the next month but drink coffee at home each day instead of going to Starbucks? Scaling back these are the activities are one key way in which you will save a lot of money in the long run.

Of course, all of this goes without saying that you should follow the adage of "paying yourself first" and simply save a set percentage of your paycheck, say 10-20%, if possible and devote that to an investment account. You will be amazed at how much you can earn in 30+ years just by investing $100 a paycheck. This is the magic of compounding at work but it's only possible through disciplined saving. Saving money is inherently easy, it's just that many people don't find it fun because the rewards we realize from it do not satisfy us instantaneously.

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