Is it possible to get Rich by just saving?
To answer this question you must first have defined what Rich is. If you think Rich is private jets, yachts, and eating out at five-star restaurants every night, then no, you cannot get Rich.
Now, if Rich is defined as making more than you spend, building savings, and making enough to retire and do the things that matter to you, then yes you can get Rich by just saving.
Let’s break this down.
We Can All achieve $1 million dollars
This might seem an impossible feat, but if you break it down by daily goals you will see it is not too far and very possible for most.
- Understand the power of each dollar you earn.
One of the most powerful concepts to understand is that power of compound interest and how it impacts your future. The dollar you spend today has a value over 10, 15, 20, 30 years that is much greater. Each dollar that you can save now could potentially double every 10 years.
Let’s look at some numbers. I know many high school students that come into the local Starbucks daily to get their morning coffee. They spend on average $5 for that cup of coffee. Most of these students make very little income, and of the income they make they spend it on instant gratification like premium coffee. This continues as they graduate, get a job, build a family, etc.
The cost of that simple daily coffee can add up to more than $160,000. That is just one simple habit that gets you 1/10th the way to $1M
- Build a formula that works for you.
Drinking Coffee may not by your habit, but look at each dollar you spend and find ways to save. The easier you can make it the more effective it will be. Almost anything we spend money on there is a way to save. For example, many people eat out to lunch every day during work, a simple habit change is to eliminate one day, then 2 days, then maybe even 3 days. If you can do that, you save $15-25 per week.
Here is a simple example to show how a formula could work:
- Skip two cups of coffee per week: $10
- Make your lunch twice a week: $15
- Eat leftovers from dinners twice a week: $25
- Use gas rewards from programs like Vons: $6
- Use Groupon to go out to dinner: $10
- By groceries in bulk: $4
Total Savings Per Week: $70
So that may not sound like much, but over 10 years you will have built $51K, over 20 years $148K, and over 30 years $334K.
- Getting Rich by savings is a marathon, not a sprint
From the example, in the second point, you can see that the more time you use your formula the more you will build over the long term. Knowing that each dollar you spend today has an impact on your money in the future helps you prioritize your spending habits.
We all want to buy things and spend money, the point is if you are going to spend money do so at a discount and at a minimum amount for as long as you can.
- Move the money!
Most importantly, once you begin to build your habits, move the money you save every day to a savings or investment account. If you leave it in your spending account, it will get spent.
Many of us reach the end of the month and wonder where we spent all our money if you begin to understand the concepts above you will begin to build habits that divert money you would have normally spent on things to your savings. The thing that changes is now you will still have the same balance in your spending account prior to your new habits, but with one main difference: your savings will have increased.
If you find the right formula you will be able to build effective savings without changing too much of your daily wants. You can reward yourself each month by seeing your savings increase with real cash.
- Getting Rich by saving
Getting rich by saving depends on your individual situation, but in most cases with dedication to building new spending habits and moving that savings to a protected account will build your path to getting Rich. Remember Rich is not wealthy, Rich is achieving financial freedom that breaks you from debt, eliminates paycheck to paycheck, and builds a nest egg to retire.
Getting To $1 Million
Getting to $1M is closer than you think and the earlier you start to the better. It will take on average of $30 a day for 30 years. This might sound incredibly long, but remember unless you have large sums of money you have to build to the goal slowly. Imagine all the things you spent money on over the last 10 or 15 years, could you have saved 10%? Maybe even 20%? Start slow, $1 per day on simple habits (skip one soda for example) then keep increasing. Before you know it, you will have created good spending habits that contribute more than you ever thought. Here is the amazing thing, when you become conscious of how every dollar impacts your future, you will find new ways to save on everything from your car payments to your credit cards. Find enough things to save on and you will quickly build a nest egg for the things that matter.
You can achieve this! Remember it takes time and moving each savings to a new account is your reward. Watch it grow!