In this article, we will address the million-dollar question – What is the Best Way to Save a Million Dollars and feel financially secure and stable (even when you have a low budget)?!
In order to arrive at the answer, we will explore financial principles and my experience of the same.
Before we discuss the techniques of saving money, let us first understand – Why do we even need to save-up?
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Purpose of saving money
1. Save for Emergency.
Over 50% of Americans would not be able to cover an unexpected expense of up to $500. Almost a quarter would not be able to cover even $100!
This statistical figure is shocking!
2. Save for Retirement.
59% of Americans are afraid of running out of money in their retirement. 36% of the population aged 50 – 64 years have not saved anything for their retirement!
This statistical figure is even more shocking!
3. Reach financial freedom.
If you can make enough money such that the interest you get on your capital is sufficient to cover your monthly expenses, you’d be free to decide when you want to retire and how you want to spend your day. Isn’t that what freedom truly means?
Perhaps, this could be your dream goal that you must strive to achieve.
Now that we know the purpose of saving money, let’s move on to the techniques of money saving –
Tips for Saving Money
Tip#1: Pay Yourself First
There are lots of people and companies around you that would want your money. Whether it is in the form of bills or ‘special offers’, all they want is a cut of your wealth.
So YOU must care for YOUR OWN financial security and stability. Therefore, pay yourself first. How do you do that?
As soon as you get your salary, keep aside 10-30% of it in a savings account. Do this before you start spending your money elsewhere.
Also, make sure to limit the temptation to spend this money by keeping the money in a place that is difficult to access (do not keep it in cash).
If your income is low, it may seem unfeasible to save – I have been there!
For example, one might say, “I am earning minimum wages. Most of my salary goes for rent and the rest barely covers my expenses and bills. How in the world would I be able to save?!”
Even though this statement is reasonable and also true to some extent, saving is still POSSIBLE.
Approximately 38 million American households live from pay-check to pay-check. Surprisingly, 2/3rds of these people earn a median income of $41,000 per annum. This is well above the poverty line!
So the truth is, it is possible to live on a smaller budget and save some money. There are so many others who are earning less or have more dependents than you, and yet manage to save.
When someone breaks a phone, they always find a way to fix or replace the phone. Therefore, it is always possible to find ways to save some money. It is just a matter of your commitment.
So how can you save money? – Let’s find the answer in Tip #2.
Tip#2: Reduce Your Recurrent Payments
Saving money penny by penny is cumbersome, tiring and boring. So instead, save money smartly and efficiently – find a way to reduce your recurrent payments.
The benefit of this is that a short-term effort of making a commitment and decision will pay off for a very long time.
On a related note, let me tell you a small story from my life. Perhaps, you will be able to relate to it as well.
When I was in university, I started exposing myself to financial principles and tips. One such book advised me to keep track of my monthly expenses by writing them down in a book.
I did this and I was SHOCKED!
Some of the expenses were much higher than I expected!
For example, coffee breaks were costing me way too much. In fact, let’s do the math together.
Let’s say we went to Starbucks and ordered a Café Latte and Chocolate Croissant.
Here is the bill break down –
If you saved and invested these $23360, it would yield relatively large dividends. It would be a significant contribution to your financial freedom.
This just goes to show how important it is to keep track of your recurrent payments.
Reduce Your Recurrent Expenses
Think about your current expenses and find ways to reduce them. Even small amounts – accumulate – and become HUGE sums of money in years.
Here are a couple of ideas to cut down on your expenses:
- If you like drinking coffee (like me!), you can buy a coffee maker and make your gourmet coffee at home, instead of purchasing it outside every day.
- Carry packed lunch from home (to work), instead of purchasing it outside every working day..
- Pay attention to your utility bills. There are many ways to reduce this (Just Google it!).
For example, LED light bulbs consume 90% less energy than incandescent bulbs. Perhaps, you can replace the most used bulbs at your home with these LED bulbs.
- Lower your mobile phone bill by checking whether you actually use ALL the services that you have subscribed to. The chances are that you are paying more than needed.
- Check if you can lower payment for your Internet and cable TV.
- Perhaps, it is possible to find a better deal for your gym.
1. Here are 3 main reasons for saving money:
- Save for emergency
- Save for retirement
- Reach financial freedom
2. Here are two main tips for saving money:
- Pay yourself first.
- Reduce your recurrent payments.
P.S. Do you have any tips for saving money? If you do, share it with us!