Letâs get this out of the way.
Saving alone wonât move the needle as much as we think it will.
The problem with saving is that we can only do so much until it really hurts.
It is the laziest and slowest path to wealth creation but itâs still a vital part of it and can make or break your chances.
To achieve financial independence, the best way to do so is to widen the gap between what you save and earn for ultimate freedom.
In financial terms, freedom means:
-Not relying on another spouse/partner/person for your income
-Net worth = ~20x your gross income
-Primary residence = ~3x your gross income
-Being able to spend flexibly
-Generating disposable and passive income
-Not needing to sell investments when an emergency strikes to generate cash
-Having a roof or several over your head
-Able to take affordable and realistic 2â3 vacations per year
-Able to eat out a couple times a week and enjoy life responsibly
-Own a healthy amount of âgood debtâ-mortgage, student loans, business loan, etc.
-Donate a slim percentage of your net worth to charity not only b/c youâre a good Samaritan but also to gain a tax-write off
-Able to afford a child or two (~$300k to raise a child in 2021 till age 18)
-Can work anywhere
-Can afford any educational investment
-Finds meaning in less = more
As wonderful as this sounds in the wealthiest nation in the world, this is still unrealistic for most Americans especially since on average 80% save 10% of their after-tax income! No wonder 60% of Americans cannot afford an unexpected expense of $1k!
Saving isnât going to solve most problems. Investing is the biggest advantage. With majority of wealth being transferred from the middle to shareholder class, the lower class is shut in the dark yet thereâs no reason that should be the case anymore. With free commission trading, free ed-tech online and fractional shares, investing is made for all.
Yet thereâs still a long way to go. With only 55% of Americans invested in stocks, the majority are not taking part in these gains. Prior to the Great Recession roughly 80% of America was invested, yet until stocks dipped and the Housing Crisis doomed America, that percentage went down dramatically to roughly 50%.
With the 55% of Americans who are invested, 52% have a majority stake in owning retirement accounts such as 401 (k)s not individualized stocks at 17% which is a good and bad sign.
Good: Retirement is expensive, more stressful than college tuition or any life stage because you are living on fixed-pension/social-security/Medicaid/Medicare/401(k) retirement benefits and no salary to earn more.
Saving is key at this stage. Traveling and visiting the grand kids cannot happen without it.
Bad: Not taking part in any major gains as the market has been in a massive bull run since 2008.
More risk = more reward
Regardless of income, location, status or wealth, anyone can invest since itâs the easiest way to live life while simultaneously saving. The stock market will no doubt fluctuate but take the burden out and invest for the future through diversification, time in the market and stoicism according to Professor Gallowayâs Algebra of Wealth.
No wonder the rich only get richer! The top 10% own 90% of the wealth in this country and have stock ownership rates above 90%. No dependance on an employer, state of the economy or others let them live in their own bubble while having the ability to save a majority of their income since none of it is barely spent just reinvested
Bottom line is: You canât save your way to wealth, invest your way to wealth.
Locked Up
Money sitting in savings account is dead. Low-interest rates have caused us to be investors and fortunately the recession as well. A savings account is a melting cube. You know how to invest but majority misunderstand inflation, deflation, government spending, interest-rates, the Fedâs promises and how the economy DOES NOT relate to the market. Yet getting wealthier is simply about practice and education. Itâs complex for a reason. Itâs made for those with focus.
Saving Sucks
It really does but shouldnât be if you know what you need and value. I will bet anyone can get rid of half of their belongings if they really tried but we choose not to. We live in a consumer addictive society where âbuy 1 get the other half offâ is enticing more than ever and you can buy a hamburger cheaper than bottle of water.
The best way to realistically save without going nuts or ending up on the street is focusing on what your discretionary (non-essential items) are. Once your net worth is roughly 20x your gross income, you are able to skip out on saving because your investments, assuming thatâs where a majority of your wealth lies, generate a higher return than selling that crock-pot.
Saving has less of a return the wealthier you get.
The easiest way for those in the bottom-half to preserve their wealth is by cutting out the subscriptions, lingering fees on credit card payments, car payments and banishing any liabilities and debt. You want to be free so become free by boosting your credit score so you can borrow more on a home or invest in yourself to inevitably make more! Without a good record to your name itâs almost impossible. If you want to be rich, you have to own at least one property and that coms with background checks, pre-approved mortgages and credit score ratings.
In the meantime while you are paying off your incredibly high interest on your credit card and or student loans which will all take time, a couple months to a few years, donât wait until itâs all complete because time is your most precious asset.
Get rid of anything that doesnât serve you and start pitching into the market. Buy a low-cost index fund or ETF that tracks the broader market as a whole. You wonât BEAT the market but at this stage you donât need to. You can active trade, although I donât recommend when you have more time. For now, start earning a consistent salary from the market.
Take 5 minutes out of your day to assess what you really use. I do this frequently.
Ask yourself:
-Do you have subscription fatigue and really use Disney + or just need it to binge literally 1 show?
-Can you downsize that vacation and drive instead?
-How can you help your kids invest in themselves more wisely through books and YouTube tutorials instead of being glued to the iPad?
-What type of food is ruining your health?
-Whatâs lingering and staying stuck in the storage that I need to sell?
-When was the last time I used that ping pong table?
I think the neighbors need it instead.
These are some of the most basic but vital questions that will make the biggest impact when starting out.
Saving will definitely get you somewhere but not far so investing leftover earnings from weighing what you want vs. need is important.
Daydreaming
One of the most creative ways to get to where you want to be in life and accomplish your dreams is by establishing concrete goals on how you want to get there!
Once you save, what do you actually want to do with that money?
Here are some of my goals that I want to accomplish when IÂ save:
-Take out another mortgage to own a basket of rental properties
-Ship myself on a much needed vacation sometime during the summer, preferably before the crowds and prices gauge which are already happening
At the moment, Iâm very content with my lifestyle because my goals are realistic and I work towards accomplishing them daily. Donât set lofty unrealistic goals such as buying a depreciating private jet or flying to space because saving wonât do justice.
Thereâs a much smarter economically and time efficient way to do that which is all in the handy dandy market.
But with all this dreaming, itâs best to remind yourself that nothing gets done looking out into space.
You have to do the hard work which starts with controlling what you can.
Save Craze
Minimalists get a bad wrap. Most people assume they are the complete opposite of hoarders who keep everything and cannot find anything they actually need.
Although minimalism is something Iâve adopted from my parents who taught me about the power of being frugal and not showing off through the stealth wealth lifestyle, it can seem intimidating to most.
These are the most common minimalist questions:
-Will I have enough clothes and food to wear?
-How bad will I have to live?
-What must I give up?
-Can I still be happy?
These sound like extremes yet living a basic life with what you need is rather plentiful and pleasurable. I woundât give it up for the world!
Transitioning into a minimalist doesnât happen overnight. You donât have to become a different person or die your hair color, you just have to start becoming aware of what brings you joy, the Mari Kondo way.
Understanding what you collect and how itâs serving you is vital. It will allow you to eliminate junk, keep whatâs needed that brings ultimate ROI, increase your X factor (your passions outside of work) and naturally become wiser in your investment decisions.
This is a helpful mindset to have when you start having kids. You want the best for them and try to buy whatever they point to on the shelves yet you soon realize especially as a first-time parent that half the junk they wanted at age 3 they are sick of at age 4. Toys, car seats, clothes, tools, gadgets you name it, they grow out of it because people like change.
We can learn a lot from people, especially toddlers. Never deny them. They move on and so should we thatâs why one of the tricks of the trade is to rent luxury, buy utility.
More often than not, the richest person on your block isnât the owner of their property. He is renting because people need change. Read more into this strategy.
Lifestyle
Saving is a lifestyle and shouldnât overwhelm or destroy you. We are human beings and love to splurge because after all whatâs the point of working so hard?
To live a fruitful savory life starts with checking off these boxes:
1) Understand Gross IncomeÂ
Where does it come from?
My best recommendation is to build a net worth equal to 20x or greater than your average gross income to make sure you stay afloat. Since everything is more expensive these days due to inflation, $5m is the new $3m so make sure you invest in appreciating inflationary hedges from real estate to value stocks that perform well during inflationary times with their cash cushion and stable current cash flows.
2) Generate Passive Income Streams
The more your streams of income can cover major expenses, the easier it will be in all aspects of life. Passive income is designed to be tough upfront with no guarantee of succeeding yet afterwards it should work for you.
3) Find A Purpose Outside of Money
You shouldnât have to spend every waking hour thinking about how to generate more money. Let it work for you through passive income and the market. Learn about passive income streams here.
We think money will save our problems and make us better but it wonât.
4) Everything is more expensive than it seems
With inflation, $5m is the new $1m. After a 6â12 month cash hoard, donât let your hard earned money die!
5) Live An Abundance Not Scarcity Mindset
Focus on wealth creation. There are trillions of dollars being pumped into the world. With the top 10% owning 90% of the wealth in this country, thatâs messed up. Focus on investing and intellectual property rather than saving every penny you make.
6) How Much are Your Worth Per Hour?
Set your standards high. You are worth more than you think. Donât let anyone control your self-worth.
7) Pay Yourself First Then Save
Max out your retirement plans such as your pension or 401(k) by your employer to save a certain percentage of your after tax income before spending a dime. Do yourself a favor and invest in automatic transfers with your bank account so the minute your employer pays you, itâs already dispersed into your savings, retirement and checking account.
8) Realize Spending Is Okay To Be Alive
9) Save Until It Hurts A Bit
Invest, Invest, Invest!
Why
Knowing WHY you want to save rather than knowing you HAVE to save will put you on the best path forward.
Splurging is okay but saving more than 50% of your income is really golden to grow massive wealth. No wonder the top 1% saves an impressive figure at roughly 38%.
They save, reinvest and earn. Majority of their expenses arenât necessities then.
Achieving that level can be difficult but easier when you know what you are going for.
This average saving rate of 38% is key for EVERYONE to try and shoot for.
Do you have a family to support?
Car expenses?
Home maintenance?
Property taxes that are pilling up?
Child care?
Health insurance?
Fees are part of life and inevitable.
Save for the unknown future because the more you save the more secure you will feel.
If you save too much, thatâs a better problem than saving too little.
Iâll leave you with this quote:
âWe buy things we donât need with the money we donât have to impress people we donât like. â Chuck Palahniuk