Save Thousands of Dollars a Year – Beginning Today!
The United States’ Economy depends on individuals like you and me spending. How much is it dependent on spending? 70%. That is right. If consumers do not spend, the economy stops. We saw this in the Great Recession of 2007 through 2009.
Our (Americans) savings habits are terrible – plain and simple. There have been data that has suggested that Americans would rather live their entire lives with debt so long as to maintain their standard of living. It is sad. One life emergency from plunging into poverty.
The data is sobering. According to Nerd Wallet’s most recent 2017 data, the average American household is approximately $137,000 in debt, while the average credit card debt hovers around $17,000.
In regards to savings? Even more sobering. A 2016 study by GoBanking shows that 69% of Americans have less than $1,000 in savings!
YES, cost of living continues to outpace income growth – a stark reality that is troubling all of us and is not gender specific. However, anyone no matter what income bracket you are in can start saving thousands of dollars beginning today. Life happens, and unexpected expenses arise and it is always best to be prepared.
All it begins with is simple awareness and a shift in mental focus. A key concept to understand in all of this? Dollar-Cost Averaging.
Dollar Cost Averaging
Sounds fancy right? The concept is actually pretty simple. It is the practice of immediately putting away a set amount each paycheck, in a savings account.
Let us look at an example:
On an annual salary of $55,000
Monthly salary: $4,583
Semi-Monthly salary: $2,292
Net-Take Home (After-taxes approximation) Semi-Monthly salary: $1,949
Common wisdom would tell you, immediately pay off your expenses and then whatever is left, save that. I argue the opposite.
Working with our example of our salary of $1,949 – once that $1,949 hits the bank account – I would start small by putting away $200 (roughly 10% per paycheck – good rule of thumb) immediately in a savings account (preferably a money-market account that could gain more interest income and also very helpful as interest rates are beginning to rise, allowing your savings to grow more automatically).
Net-Take Home (After Taxes): $1,949
Savings: $200 _
Now, we have $1,749 to work with to manage any lifestyle needs.
Once the second paycheck in the month, hits your account – transfer that $200 to that savings account.
Right there, you already have $400 saved! Fast-forward to 6 months with this strategy and already $2,400 is saved and in a year you will have approximately $5,000 in that savings account especially if it in an interest-bearing account.
This should be an automatic move, before doing anything else. Once that habit is built, we could all be saving thousands of dollars a year. For those of you all out there, who feel that they cannot put away 10% away per paycheck, start out smaller. Even automatically putting away $50 per paycheck could pay off down the line.
You could play around with this, until you feel out what is comfortable for you to meet your needs. Once you are comfortable with saving five or ten percent consistently, then try to begin to gradually raise the percentage to see how far you could go.
Just like exercising, living and anything else in our lives, it is always about the habits and the strong foundations that we build. Once that foundation is built, it will become a routine and you will feel like you are in control of your financial decisions – a feeling that is very empowering!
Remember: It is never about how much money you make, but about how much you spend.