Posts Tagged ‘Savings’

Most people view obtaining wealth and riches as the final goal in life. They feel that if they can get more money then they will be happier and have a more fulfilling life. That with a little extra money the worries will start to disappear and with a lot of money the worries will be gone. i don’t think this is the case. it all depends on how you view wealth and riches.

To me, wealth means freedom. As Robert Kiyosaki discussed in Rich Dad Poor Dad, wealth is measured in time. It is how long you can maintain the lifestyle you want without having to work. I agree with this. Working 40 hours a week, even if you like your job, takes away your freedom.

However, you don’t have to have a lot of money to be wealthy. You can also obtain wealth by reducing your costs and spending. The lower your average cost of living, and the greater your savings, the longer you can live wealthy outside of work. For Example, someone who makes $30,000 a year, and only has an average monthly cost of living (including expenses and spending income) of $1,500 would accumulate an average of 8 months of wealth (8 months maintaining current life style without working) each year. Someone earning $70,000 a year with an average monthly costs of $4000 would only accumulate an average wealth of 5.5 months after one year of working.

$1,500 X 12 months=$18,000 $30,000-$18,000=$12,000 $12,000/$1,500=8 Months

$4,000 X 12 months=$48,000 $70,000-$48,000=$22,000 $22,000/$4,000=5.5 Months

One of the biggest reasons why people never seem to be able to get a head is because there spending increases in proportion (or more) with their increase in earnings. When they get a raise, they buy a more expensive car, a bigger house, a bigger tv, get satellite, and eat out more often at expensive restaurants. No I am not saying that you should save every penny and give up having any fun. What I am recommending is that you decrease your spending overall, and never let your living costs increase by a larger or equal percentage than your increases in salary.

In part two I will cover 5 easy ways to increase your wealth and savings.

The simple answer…..Maybe. It really depends on your situation. Those who have no debt should be saving as much as possible, and the younger you are the more aggressive your investments should be. The reason is that you have many years to make up for down years.

For those of you who have debt, then you should only be saving if you can make a better rate on investing than you are paying in interest. If you are making less in your investment than interest, then your investment is costing you money. Especially for those who are just putting money into savings accounts. This seems simple, but a lot of people are doing exactly this. I think it is smart to keep a small amount of money saved for emergencies, but besides this, it is usually best to pay off your debt before investing. That is especially true for credit card debt where the interest may be around 20%.

Below I have done a few calculations to show exactly how much you are loosing if you are putting money in savings with debt. I have used the amount of $10,000, and the difference will be even great the more money you have saved.

Savings account

Principle= $10,000

Interest=$3%

Time=1 year compounded monthly

Value in 1 year=$10,304.16

Debt

6%=$10,616.78

Total investment= -$314.62

10%=$11,047.13

Total investment=-742.97

19%=$12,074.51

Total investment=-$1,770.35

So as you can see, the higher the interest rate the worse off you are to put money in savings. The only case where this would not be true is if you can make a higher rate than what you are paying on your debt. The ability to do this is more difficult the higher the interest rate you are paying for your debt.