When it comes to money, what you save is more important than what you earn.
Relatively speaking of course… saving to invest off a $30k income isn’t going to get you too far towards any significant financial goal.
But generally, the rich get (and stay) rich not because they continue to increase their primary income, but rather because they put their earnings into appreciating assets, i.e. stocks, real estate, business etc.
Only the debt-poor and the uber-rich spoil themselves with fancy cars, hotshot clothes and endless lifestyle upgrades. Indeed, fake status indicators and expensive hobbies are marketed to debt slaves more than they target the rich.
Fancy things may become so many toys for the upper one-percent to play with, but most luxury purchases are made by people who don’t have enough funds in their checking account to cover the price tag.
The truly wealthy look at earning dollars like scoring points in a game. Dollars are freedom points. Every one that you save and manage appropriately advances you towards independence and a bigger, better life.
The rich understand that ceaseless, debt-driven lifestyle upgrading turns money-getting into a fool’s game: one goes around and around in a circle of instant gratification while making himself evermore dependent on active income production to cover monthly bills and piling debt.
All his labor fails to build a lasting treasure for himself. The seeds of his work are nipped in the bud before they can grow strong to yield much sweeter fruits: control and flexibility over time and lifestyle.
The rich live comfortably below their means and treat their personal finances as a business – foremost by meticulously cutting waste. The rich are focused on retaining more resources for investment in endeavors that make them more money.
Simply put, in plain english…
The key to a lifetime of wealth and freedom is living way below your means.
You have a choice in upgrading your lifestyle to match your income; It doesn’t have to be automatic. The money you save today can go to fruitful investments that will grow to make you wealthy over the long-term. In the mean time, embrace minimalism.
Here are some of the most high-impact habits for cutting wasteful spending and optimizing the value of every dollar:
1. Square your house and transportation.
Save for housing and food, transportation is the biggest drain on most peoples’ money supply. A sensible individual will offset this expense by simply living closer to their place of work, using public transit, biking to work…. or choosing a different city or job where this arrangement is possible.
Daily commuting by car is the most ridiculous waste of money and time that you can possibly burden yourself with. Here is a fairly detailed breakdown of the costs. But for simplicity sake, consider this: you have already purchased (or god forbid financed) an asset that is not only sharply depreciating in value, but also requires regular maintenance $, insurance $$, fuel $$$ and possibly even parking!
This wastefulness is massively detrimental your financial health.
Until you get out a calculator and total the costs over 1 year, 5 years, 10 years… you cannot fathom how much your transportation is costing you. Not even to mention the opportunity cost of spending 51 minutes (national average, round trip) of your life every single day in commute.
A sensible man driven towards financial independence will do everything he can to make his primary source of income not depend on travel by automobile. That means finding a way to live within biking/transit distance of work, or better yet finding a way to work from home.
2. Buy in bulk and make simple foods at home in batches.
Making your own meals at home has the potential to save your bank account… and your health.
It is no doubt a great pleasure to visit restaurants on special occasions. But eating out regularly, for lunch and on weekends, is a very expensive habit and seldom worth the experience.
When we have established wealth, we earn the right to enjoy that convenience more regularly. As we are building our investment stash however, it is a crushing burden to avoid the chore of grocery shopping and buy the quick-fix whenever hunger strikes.
Not to mention, in most places in the U.S., it is very difficult to find a lean, simple, healthy meal available on-the-go without spending major $$$$. Most restaurant food is loaded with salt and sugar. The average American diet does not contain the kind of food that promotes high-energy nourishment to the body and brain.
Simple and plain foods won’t satisfy people who have long been compulsive in their salt & sugar addiction. It may take some time for the tongue and the micro-biomes of gut bacteria to adjust.
But if you give it a chance, you will learn to be completely satisfied with plain brown rice, rolled oats, beans, nuts, lentils, pasta, vegetables etc.
A plain diet of simple foods is the max energy, longevity diet… and also the low-cost diet.
You can buy most wholesome foods in bulk once a quarter and skip the constant trips to the grocer, further reducing your traveling expense.
With a bit of effort and discipline, you can easily plan your weekly meals to optimize every dollar spent, while not wasting any food.
Practicing this mindfulness, you will soon find yourself spending less in a month on food than you had before in a single week of eating out.
And by making a week’s worth of food in batches on a Sunday, you will redeem much of the time lost in preparing meals as a daily routine.
Also, be sure to buy huge amounts of your shelfable staples whenever the grocer is offering a massive discount on the item.
3. Learn some renaissance skills and DIY hacks
There are a lot of services that people pay huge fees for which they could probably learn to do themselves in five-minutes by watching an instructional video on Youtube or reading a blog.
Isn’t it at least worth a shot trying to repair or improve something on your own before you call in a service or buy something new?
This is especially true with home and auto maintenance, but also with everyday things. You can fix your own washing machine, use vinegar to clean your house, use baking soda to whiten your teeth… there are a million ways to save money without much effort. All it takes is getting in the habit of ‘repair and re-purpose’… before you replace!
Simply Google ‘How to XXX’ or ‘YYY DIY’ or ‘ZZZ Hacks’. You will be surprised how many incredibly cheap solutions there are to solve common household problems.
4. Shop Ebay and Craigslist
We are a mega-consumer society and so much of what is compulsively purchased by the average American soon ends up on a shelf in the garage gathering dust.
Things like furniture, music gear, exercise equipment and kitchen machines are a slam dunk for purchase at ~20% of their original retail cost. You are almost always assured to get stuff that is good-as-new because Ebay has a credit system with preferred sellers, and on Craigslist you can go check out the item before you buy it.
If you haven’t shopped those markets before, you will no doubt be surprised at how many things on your typical wedding registry can be found in mint shape at a fraction of the cost. Not to mention sourcing your clothes and dishware from second-hand stores.
5. Track your earning and your spending
As has been said many times – what is measured is managed. When you see your financial numbers changing before your eyes every month on a spreadsheet or wealth management tool, you begin to feel the full gravity of your losses and gains.
Track your savings. Track your spending. Build out projections for your investments. I don’t say keep a ‘budget’ per se, but just a record of progress towards your financial goals.
6. Put all your purchases on a credit-card for cash-back or flyer miles
This is an easy and obvious one… but you will again surprise yourself with how much you can gain by taking full advantage of signing bonuses and point rewards.
Playing the game of applying and closing new credit cards, while paying off your debt completely every month, is definitely worth the time it takes to manage… especially for people that travel frequently. Google ‘best credit card deals’ and understand your options.
Just remember to always leave your oldest credit-line open, even if you are not using the card. And also, allow to pass at least three months between new credit applications… as not to have too many dings against your credit-score all at once.
7. Google coupon deals for whatever you are buying
This literally takes five seconds and you can save money on something that you were going to buy anyway. Not just for online shopping. Especially good practice for health supplements!
There is also an app that does this for you automatically at online checkout.
8. Negotiate everything from your cable bill to your salary… be vigilant!
I do not have cable nor a salary, but see here for more ideas.
Note that all this may be moot if you are fully consumed with decisively executing a brilliant business idea or otherwise working in a field where increased work hours directly affect your earnings (commissions, deals closed etc.)
You have to take account as to whether it is worth spending the time to, say, prepare your own meals if you could be spending that time increasing your income to a greater financial impact.
Or if you have a sweetheart job with high-income, a commute may make sense temporarily – so long as one is keeping the bigger picture in mind.
That is why saving is only relatively more important than earning and not absolute.
If you are in a very lucrative and productive phase of your life, then by all means buy your time and pay someone else to do the laundry!