Between the years 2018 and 2021, I saved close to $85,000. I made many decisions during this time period that helped me save a large amount of money.
For starters, saving money is a mindset you need to have. It’s not about feeling pain with every dollar you save, thinking, “But I want that shiny new object.”
Ideally, saving your money should feel better than spending it.
Now, there is nothing necessarily wrong with spending money. There is nothing wrong with enjoying the fruits of your labor. The issue arises when your habits don’t align with your goals. If your goals are to spend money (buy things, travel, upgrade your phone, new clothes, etc.) then spending all your hard earned money is just fine. If your goal is investing, then spending your money frivolously is a handicap to a prosperous future.
Think of it this way: a dollar invested today is not worth a dollar 10 years from now. Depending on where and how it’s invested, the same dollar might be worth ten-fold in the future. The same dollar you decide to invest today can create multiple dollars when it’s time to cash out.
Every single dollar is worth more in the future than it is now. Therefore, saving it will provide more for you at a later time than if you just spent it all now. The more money you save, the more you can invest, the more money you can invest, the more money you will be able to eventually spend.
You can start by writing down your total monthly income. Once you have your total monthly income figure down, you will deduct your rent or monthly mortgage payment, car payment, insurance, utilities, and anything else that is a necessity. (I recommend using RocketMoney to track your spending. It lets you connect all your bank accounts, including credit cards, and it categorizes all of your expenses, allowing you to create budgets and even savings plans.)
Once you have deducted your necessities, what is left over is your disposable income.
Now, many people have different opinions regarding how much of your disposable income you should save. Some people recommend 10%, others 20%, even up to as much as 50% of your disposable income.
For this decision I would recommend reflecting on your goals: Where do you see yourself going? How fast do you want to get there? Where are you in the process? How much can you realistically save? Other things to consider are when do you plan to retire, what are your current family plans, and of course, what exactly are you saving for?
It is very important to have a goal in mind. Make it tangible. Say that you will save, for example, $10,000 by the end of the year. Or that the amount you are saving will go towards a down payment for a house or rental property.
Write the goal down and pin it somewhere, so that you are reminded of the goal every time you are about to go out and spend money, every time you want to buy something you don’t need, any time you want to eat out instead of dine at home.
I like to save and invest as much of my paycheck as I possibly can.
I save 35% of my total monthly income. I max out my IRA, my HSA, and I put aside a couple of thousand dollars towards my future investment fund. Each month, I put the money aside and invest it in stocks. When I have enough for a down payment, I take that money out and purchase real estate with it.
I cut back on most of everything I don’t need. I set my daily “fun” budget at between $10-15 dollars a day. Truth is, I just don’t need to spend much money to be happy. At least not daily.
My car is paid off. I house-hack, therefore I have no housing expense. I cook at home. I put all the monthly cash flow from the home into my business savings account to keep as reserves for vacancies and maintenance. I pay my credit cards in full at the end of each month to avoid any interest or fees. If I have to, I’ll transfer large balances to cards with an introductory interest rate in order to avoid paying high interest on the balance.
Once you have figured out your disposable income. You can then decide what percentage of that income you will save depending on your goals for the future.
