We all know the importance of learning how to save money. We know that to invest and enjoy financial freedom we need an effective savings method, which allows us to have capital that works for us.
However, when people are asked if they are saving, or have any savings method that they apply in their lives, the answer is usually negative.
In fact, the vast majority of people live under the lie that when they start earning more money, they will start saving.
According to a study of Sura Asset Managementabout the ability to save in Latin America, it was found that only 57% of people have a savings method that they apply voluntarily.
How are these results interpreted? That the vast majority of people understand the importance of saving, that we know or have some saving method, but even so, we are not doing it.
We have many excuses to justify a lack of commitment to our future and financial freedom; we say that we have a lot of debts, that the company does not reward us well for our work, or any other idea that seeks to hold others responsible for our inactions.
However, reality has shown us that the more we earn, the more we spend. Our quality of life tends to improve as our income improves.
This is why in the process of learning how to be a millionaire, we must be demanding with the cost of our lifestyle, since it tends to increase.
In fact, we have no problem going to more expensive restaurants, buying better quality clothes, traveling more frequently, having an apartment with more square meters and continuing with the same justification that when we earn not X amount, but XX amount, we will define a saving method for our life.
What makes you think that you will acquire the habit of saving later, if you are not doing it right now?
The problem is that we consider that saving is the consequence of an external scenario, and not the result of your financial education.
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Why should you have a savings method?
When you understand that an effective savings method allows you to put money to work for you, you will begin to do so immediately.
It’s that simple, and the faster you start doing it, the harder it will work, because thanks to the compound effectyour savings will become investments that will grow exponentially.
In other words:
Don’t wait to invest. Rather invest and then wait.
Although the amount of money you save will depend on your financial goals and the quality of life you want to give yourself, here is a savings method that will guide you to know how much money you should save depending on your age:
Remember that the key is not only to save money, but to invest it in funds, businesses and portfolios that have certain expected returns. So here we explain how to invest your money.
In your 20s:
At this stage of your life, make sure you save 25% of all your income (salaries, extra income, profits from your businesses), this also includes the mandatory contributions you make to your retirement in the case of employees.
The most important thing about this stage of your life is that you learn to live with less than what you earn, specifically with 75% of your income to maintain your lifestyle.
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In your 30s:
By the time you reach your 30s, you should have saved the equivalent of your annual income. For example, if you earn $24,000 a year, your total savings would need to be $24,000 or more.
Remember that this goes far beyond the amount you have saved for your pension; this includes investments in collective portfolios, real estate, the money you have working for you in a business, among others.
From here is when the compound interest begins to take effect with this savings method, since when you turn 35 you should have twice your income saved.
At age 40, 3 times your salary.
At 45 years old, 4 times.
At age 50, 5 times.
At age 55, 6 times.
At age 60, 7 times and,
At age 65, 8 times.
While it may seem impossible to have that amount of money saved at age 65, if you put money to work for you from your 20’s, rest assured that compound interest will do the hard work for you.
The invitation is that you are not satisfied with your current income level, start a lifestyle that includes business and investments in different industries that you know. For example, you can learn how to buy Bitcoins, invest in the stock market, and other types of businesses.
Finally, don’t let your lifestyle exceed 75% of your income. Although this method of saving may not be applied 100% of the time, it does make it clear to you the importance of saving when building your wealth.
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