Most people think that all of their money problems would be solved if they just earned more money. Sadly this isn’t true.
The elastic principle of spending is that the more you make, the more you spend.
The only way you can break this cycle and get your finances under control, is to stop spending more than you earn. Having enough of a gap between what you earn and what you pay out that you have a lot of room to breathe and save is the key to getting rich.
And the good news: saving money is actually the easier option anyway. It’s a whole lot simpler to live more frugally than it is to find extra money.
Why Even Saving Small Amounts Can Make You Rich
The real secret to becoming rich is really no secret at all – in fact you already know it. Its saving money regularly, putting it into a high interest account and letting compound interest do it’s magic.
That means every pay day you put away your savings first, before anything else, yes even before the bills.
A good amount is around 10% of your income, but if you can manage more without it impacting your lifestyle then definitely go for it because you’ll become even richer.
Let’s say that you earn $3,000 a month, so decide to put 10% of that away in savings: so $300.
Over time at a conservative interest rate of 2% (interest rates on most accounts suck at the moment) you could have the following:
1 year: $3,600 + $39 interest = $3,639
5 years: $18,000 + $937 interest = $18,937
10 years: $36,000 + $3,845 int = $39,845
20 years: $72,000 + $16,415 int = $88,415
50 years: $180,000 + $127,774 int = $307,774
Now sure 50 years is a long time away, but you can see from the example that the longer you can leave it, the more compound interest starts to work in your favour as you start earning interest on the interest and so on.
But I know what you are saying. $300,000 in fifty years isn’t going to be the same as $300,000 now. Ok, sure. But is your income ALSO going to stay at just $3,000 a month as well? Likely that will go up over time and you’ll contribute more to your savings, and interest rates will rise again and you’ll be even better off.
And remember: The time is going to pass whether you are saving money or not, so wouldn’t you rather have something to show for it at the end. I know I would.
When Should You Start Saving?
Obviously the earlier you start saving the more you can have compound interest working in your favour, but even if you only have 20, 10, 5 or even 2 working years left it’s never too late to begin saving.
The key is saving regularly. Every pay check.
Consistency wins the game.