Published in G! Magazine December/January Issue
Article By: Mazen Ellaz
If you can dream it, you can achieve it. But first, you have to save for it.
How to get rich without feeling the pinch.
So, you want your money to make you money. Who doesn’t? At a time when every penny counts, it’s more important than ever to have savings to fall back on when you need it. The good news is that it’s never too late to start saving for the things you want; you just have to commit to savings and earning money on money is easy. However, if you’re reading this and you’re 20-something who doesn’t already have a savings account, listen up: start NOW! Why? Because you, my 20-something friend, have time on your side.
Say, for example, you’re 25-years-old, you’re working, making money, and living it up (as most 25-year-olds do). If you were to take one (just one) weekend off a month from frivolous spending – no movies, no clubbing, and no eating out at restaurants – and take $100 and put it into savings, you’ll have $50,400 plus interest by the time you’re eligible for retirement. But if you wait until age 30, that total drops to $44,400 plus interest. That’s $6000 you’re potentially missing out on! The longer you invest, the larger the growth. As little as $50 a month will add up.
The question is how can you save each month without feeling the pinch? It’s tough but it’s doable. Do you really need that cup of coffee, latte, or cappuccino every day, or is it that you want it? To really put things into perspective, which would you rather: a momentary caffeine/sugar fix, or a tropical vacation, a new car, or your dream home?
The trick is to pay yourself first, a golden rule I learned from a book called The Wealthy Barber by Dave Chilton. When you get your paycheck, take 10 percent of your income and invest it into a savings account. This 10 percent doesn’t include your retirement savings; this money is for you and you alone. Set it aside and forget about it. You’ll be surprised how easy this becomes a habit and how quickly your savings will start to grow.
To make saving even easier, set up a pre-authorized transfer service that will automatically transfer a set amount of money at a specific time you choose from one account to another. That way, you never have to physically “part” with your money.
Look at what you are choosing to spend your money on. The key to a successful savings plan is to distinguish between your wants and your needs. So, what exactly qualifies as a need? Basically, anything that you have to have, like shelter, food, clothes, and health care. A want, on the other hand, is something you would like to have (a new car, a big house, brand name clothes, etc.). Don’t misunderstand, you can have all the wants you want, but quite simply, you’re going to have to budget for them.
To make real progress, you have to take control of your cash spending and not just hope everything will work itself out. Believe me, the most powerful financial tool that you have is your savings. Do you think all of those rich people out there are smarter than you? Nope. It’s because they know saving is a must to get what they want. Do as the rich do, even if you’re a brokester because one day, it will pay off.
Mazen Ellaz is a special financial contributor to G! If money talks, he’s the guy who can tell you what it’s trying to tell you.