This Simple Savings Rule Will Help You Accumulate Wealth
Years ago, I had a great friend who I considered truly wealthy. He had it all: a nice home, a great family, wonderful friends and there wasn't much he couldn't buy. He seemed to have his act together, so much so that I asked him how he did it. How did he seem to have it all, while most people in the world were living paycheck to paycheck? His response was somewhat expected, but he explained it in a way that made it sound easy. He said it was two things: discipline and consistency. And then he went into detail.
He told me it was not about starving yourself or going without for months on end. Rather, he said it was about doing the simple things, but doing them consistently. Going into further detail, he explained the three things I have adopted for many years, and they have had a significant impact on my life.
First, he said that whenever you get a raise, don't spend it. If you are making a certain amount of money and used to a certain take-home pay, wait until you get a raise and the money in your paycheck rises, and always invest that amount.
Unfortunately, most people simply take that new amount and find another way to spend it, such as buying a car, going to Starbucks more often or taking more vacations. His goal was to keep his life the same and simply invest the difference.
Let me give you an example. If you are making the average American salary of approximately $63,000 per year and you get a 10 percent raise (which I realize is high), that will give you about $400 more per month in your paycheck after a 20 percent tax (state and federal). By the end of the year, you will have an extra $5,000. The simple secret to becoming wealthy is to take that $5,000 and invest it each year. Think about it. You did not have the $5,000 before the raise and you were getting by. Do you really need it now? Could you put it away for later?
Next, he told me about refinancing his home mortgage. He said each time he was able to refinance to a lower rate, he took the savings and invested that amount also. The last time he did that, he was able to begin saving $500 more per month or $6,000 per year. Again, most people would find other uses for that newfound cash, but he made it a part of his investment account.
Finally, he talked about falling prices. There was a time when the price for a gallon of gas fell significantly, much like it has recently. Six months ago, the average price for a gallon of gas was $3.60, while today it is down to $2.25. That is a savings of $1.35 per gallon. And if the average car holds about 20 gallons of gas, and that tank is filled once per week, the average American will save about $1,300 per year. So, my friend said he would take that $1,300 and invest it.
It takes discipline, I know. But with these three examples, an investor could save an additional $12,000 per year and not even notice it. If you truly embrace this, you aren't really giving up anything at all. As a matter of fact, you are still able to buy the things you were buying and spend what you were spending, but now you are putting that savings away in an account that will help you in the future, such as for a down payment on a house, your kids' college tuition, a new car or even a better retirement.
Although this is not rocket science, or even a daunting task, it is about the two things my friend told me were the most important: discipline and consistency. Start incorporating this idea into your financial plan and you will find yourself with more money for your future.
Good luck and happy investing.
Kelly Campbell, certified financial planner and accredited investment fiduciary, is the founder of Campbell Wealth Management and a registered investment advisor in Alexandria, Va. Campbell is also the author of "Fire Your Broker," a controversial look at the broker industry written as an empathetic response to the trials and tribulations that many investors have faced as the stock market cratered and their advisors abandoned their responsibilities to help them weather the storm.
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