I want to say something about a very common piece of advice dished out by many financial advisors and that is to save at least 10% of our take home pay.
Now, this is an easy enough one liner but is it easy to put into practice?
For me, however, I have always said that saving even 10% is too little. Of course, everyone's circumstances are different.
So, for some, 10% is all they can manage. For some, even 5% could be a challenge. I have found out, over the years, that many do not save anything at all.
For people who are saving 5% to 10% of their salary every month, they want to work on increasing that percentage. For those who are not saving anything at all, it is worrisome indeed.
These people should sort out their needs and wants and see if they could start saving some money regularly.
If they have made all possible reductions to their expenses, they might want to find ways of increasing their incomes. This will power up their savings rate assuming that all additional income earned is saved.
It might sound trite but saving is the very first step in an average person's journey towards financial freedom. Remember, it is always hardest in the beginning. Start and don't stop. As we gather momentum, it gets easier with time.
Remember Newton's first law? Yes, it is the law of inertia. Without exerting a force to make a change in our lives, we will remain where we are and inertia is bad company. Once we force ourselves to move and stay the course, inertia becomes a good friend.
Squirreling away even a small amount each day would definitely add up. The result could be amazing when coupled with prudent investments.
Shall we perhaps start with that drink we always buy in the canteen during lunch? Could we instead drink from the water fountain in the office or make a cup of coffee in the office pantry?
Saving $1 each working day would mean $20 a month or $240 a year. A cup of coffee from Starbucks would cost many times more. Quite unhealthy too, in more ways than one. Seeing stars?
Invest the $240 for a 10% yield and we would have 24 cups of "free" coffee in the following year. If we like Starbucks' coffee, it would work too.
Now, assuming Starbucks' coffee costs five times more, if we should be willing to "downgrade", we could be looking at 120 cups of "free" coffee instead of just 24. Downgrade? Another sacrifice? If we can live with it, why not?
Trust me when I say that frugality has a way of growing on us. Saving $240 this year might yield 24 cups of "free" coffee in the following year but once we are used to not paying for coffee as a working adult, we could have "free" coffee for the rest of our lives when we finally retire. Amazing, isn't it?
Sacrifices made today could transform into huge gains over time. Believe it.
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