I Cannot Save a Cent

OK, we have gone over the fact that I believe anyone who starts at a young age can pretty easily become a millionaire.  I showed you how to do it with a simple saving plan of $4,000/year.

BUT YOU TELL ME YOU JUST CANNOT FIND THOSE SAVINGS.

Don’t think I have not heard this before.  For many $4,000 a year may seem like a lot of money, especially when you are working at a minimum wage job.

What I am about to tell you is the first difficult thing you will have to do and it is up to you whether it is worth it or not.  I’m not kidding you, when you are saving only $4,000/year it will seem like the you will NEVER get there (so why try?).  Here is what you are up against:

After 5 hard years of saving (with 6% return) you will only have:  $22,548

After 10 years:  $52,723

After 20 years:  $147,142

Of course in each 10 year period you are only putting away $40,000 of your money, and hopefully you see in the first 10 years you make about $12,723 in return, but in the second 10 years you make $54,419 (and it keeps getting much better – that is another lesson).

The problem is it will seem like NOTHING at first – like it is just pure gut savings, and in fact IT IS!

So how do you accomplish these feats of savings?   It is a three step process:

1.        Break down the task at hand to something simpler.  $4,000/year is $333.33/month, $76.92/week,  $10.95/day.

2.       Find something that you can give up:

a.       Daily Starbucks – $5.00.

b.      Cigarettes – $6.00/pack.

c.       Go out Friday OR Saturday night, not both.

d.      Drive a used car.

e.      Take a lunch to work.

f.        Get a roommate.

3.       Put that money into an investment account – FIRST, before anything else.

 

What I am saying is to make lifestyle changes.  What I like to think of as “Living a level below what I think I can afford”.  It is a FACT that people will live up to the absolute level of their income.  If you make $700/week and take home $560 I can guarantee you will spend every penny of it if you allow yourself to do so.  Now I come along and tell you to save $76.92 of that $560.  What you have to do is look at a person who you think only has $480/week to spend and live like they do.  There is your $80 in weekly savings.  Giving up some of the suggestions above, or finding things of your own that are not NECESSITIES to give up allows you to make those savings.

Here is exactly what I did as a yute….

I graduated college and received one of the top paying jobs in my class (it was pure luck, believe me on that).  When I got to my new life (I moved 2,500 miles for that job) I did the following:

1.        Bought a used car that was not very cool (but cheap to own and reliable).

2.       Got a roommate (in fact two roommates).

3.       Would only go out once a weekend.

4.       Rode a bicycle, played softball, played pick-up basketball and used a cheap gym membership for my primary entertainment (all costing next to nothing)

5.       Quit smoking

6.       Eventually the three of us moved out of our posh “bachelor pad” and into a much cheaper house we rented.

7.       When I bought my first house I bought it as a partnership with one of my roommates.

8.       Had money deposited directly into my company 401(k) and into an IRA I established.  This is the “Pay Yourself First” technique that I think is so important.  Once the money is in those deferred accounts it is like it is gone (at least that is how you should think of it).

While my starting salary at the time was only $400/week I managed to save $2,000 every year for my own IRA and an additional $2,100 into my company 401(k).  Sure it was a different time and living expenses were less but that was still over 20% of my total pay, or more than 27% of my take home pay (so you should be able to do the same percentage).  Sure, I had friends driving Corvettes, going out several times a week and generally living a much more exciting life than I was, but I was determined to “Live a level below what I knew I could afford.”  I had watched my father (and mother) for years running a strict budget, buying day old bread, raising our own cattle and chickens, canning all our vegetables from our garden, living with a single car for a family of 8.  I knew we could have had more but I had learned why we did that and securing a future was more important to me than my current gratification.

So don’t tell me you cannot do it unless you want me to come over there and go through three months of your checkbook and credit card charges and tell you EXACTLY where I would get those savings.  You have to internalize your savings.

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