If you want to accumulate wealth, you have to cut back on spending.
To help you get started, we rounded up money saving strategies from the best savers out there — those who have saved over 50% of their income.
Not only will increased savings allow you to put more money to work and grow it through investing, but if you save enough, you could even consider retiring early. Most of these diligent savers retired well before the average retirement age of 62.
“Many assume that you have to work 40 or more years to retire, or that long term international travel is only for college drop-outs and dirty hippies living on rice and beans,” write Jeremy Jacobson and Winnie Tseng, who retired comfortably in their 30s and now travel the world. “It doesn’t require winning the lottery, inheriting a windfall, or getting lucky on some penny stocks. There is really only one thing that determines how quickly you could join us on the road: savings rate.”
Read on for tips to increase the amount of cash you’re able to put aside:
SEE ALSO: I just became a millionaire at age 35, and it’s a huge letdown
Track your expenses.
Do you know how much you spend eating out, on monthly subscriptions, or on coffee? Chances are it’s more than you think.
“Write out all of your spending and analyze it,” explain Jacobson and Tseng of Go Curry Cracker, who committed to saving 70% of their income for about 10 years in order to retire comfortably in their 30s. “Track your dollars. I guarantee you’ll find something that either you didn’t know you were spending your money on, or you felt was unnecessary.”
Try keeping a spreadsheet on your computer, or consider an app that will automatically track your expenses for you, such as Mint, You Need a Budget, or Personal Capital.
Set up an automatic contribution to your retirement savings.
You should already be contributing to your employer’s 401(k) plan if you have access to one, and taking full advantage of the company match if it’s offered. Just like a 401(k) contribution is automatically taken from your paycheck, another smart strategy is to automate your contributions to alternative retirement accounts like an IRA.
Simply choose the percentage of your paycheck that you need to set aside and invest in order to reach your financial goals, and set up an automatic transfer from your checking account into your savings — you’ll never even see that money and will learn to live without it.
“You just figure out how much you need to deduct from each paycheck and then set it up at the beginning of the year,” writes Joe Udo of Retire by 40, who saved over half his income and retired at age 38. “You can do the same with the Roth IRA and 529 as well. After you set up these auto contributions, then you’re safe to spend the rest of your take home income.”
Think about money as something to invest — not as something to spend.
If you’re going to develop one effective habit to help you achieve your financial goals, make it the way you think about money — start thinking about it as something to invest, rather than something to spend, recommends “Mr. Money Mustache,” who retired at age 30 by saving about two-thirds of his take home pay.
“The growing part of my money is pretty simple,” he told Farnoosh Torabi on an episode of her podcast, “So Money.” “I just like the idea of keeping all money invested. So if I run into a surplus sometime, I don’t think of something to buy with it, I think, ‘OK, I better get rid of this money and put it to work again.’ So, I sweep it out of the bank account and into regular index funds.”
While a raise, generous birthday gift, or lucky lottery winnings may trigger a shopping spree for most of us, Mr. Money Mustache’s instinct is to invest surplus money, which in part eliminates any spending temptation that may arise.
See the rest of the story at Business Insider
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