Americans are horrible at saving money… Except when there’s a time of crisis
As you can see from this graph, the personal saving rates spiked to an all-time high during the recent illness.
And it makes sense why.
If you look at this chart by google trends, you can see that people were looking up information about an economic recession, right about when the illness started, around March 2020.
If we go back to the first graph, we can see this massive spike start to go back down to normal levels.
Meaning that for the most part, we’re able to take a deep breath, and have gone back to normal.
Data has shown that the median savings for an average American are around 5,300 thousand dollars.
That’s not a lot of money.
At least not enough for the average American to reach their financial Freedom.
The data jas shown that we’re great at saving money when we’re scared and have to think about a possible economic downturn.
In today’s read, I will share with you 7 powerful tips that will turn you into a money-saving machine, and stay tuned for number 5.
That’s my personal favorite out of all of these.
Why is it so hard to save.
But before we move on to the list, we need to understand why it feels so hard to save money.
And in my opinion, no one has been able to explain why many people struggle to save money other than Morgan Housel, in his book, The Psychology of Money.
You see, most people think that savings are your income minus your expenses.
But Housel puts all of that into a unique perspective.
He claims that actually, saving is equal to your income minus your Ego.
And, in a first-world nation like ours, we can see how much of the things we own, are luxuries rather than necessities.
And this is vital to understand before you’re able to make any changes.
You need to separate your wants from your needs.
You might need a place to sleep, but you want the most expensive and luxurious apartment you can afford.
You need to eat, but you want to go out and have a fancy meal that could cost you 10 times more to make, than if you had done it yourself.
But that’s not to say I haven’t fallen victim to this mode of thinking because I have.
In fact, it’s such a common occurrence that psychologists have explained this very human phenomenon.
Present Bias is when we humans start to put more value into present trade-offs, rather than long-term gains.
And it makes sense, why would you want to invest in a future that may not be there at all.
When we know for sure that at this moment, we want to enjoy the best out of life.
I can’t fault this thinking, it’s perfectly natural.
But you always have to balance between having a good time now and leaving enough fodder for the future.
And if that seemed hard to overcome, there is another barrier known as loss aversion that puts another mental barrier when it comes to saving for the future.
This is where we feel stronger negative emotions when we perceive losing money.
And every time we take out a chunk of our income and put it into a savings account, our lizard brain activates.
And subconsciously believes that we’re losing that money.
When in reality that money is still ours, only the future version of ourselves.
Overcoming these mental barriers is not easy.
But if you think about it.
What we put aside today, could become much bigger if we take into account:
If we put all the money we’re able to save into an index fund like the S&P 500.
It would gain about 10% in value over time.
With the magic of compound interest, if you out down 10,000 dollars today in the S&P 500.
In thirty years those 10 grand would turn into 175 thousand dollars.
This is why savings are so important.
Snd today we will go through various strategies to help you save as much money as possible so that 30 years from now’
You become a millionaire and be able to achieve financial freedom.
Saving tips
Tip#1: Break down your goals.
Tip number one on the list here is to define your savings goal and break it down into smaller more digestible goals.
Let’s say you set a goal of saving 15 thousand dollars this year.
The first thing you think is damn!
15 g’s are way too much, how in the world am I supposed to save that much in one year?
And listen, I totally understand.
15 thousand is a big scary number.
But I don’t want you to think about that number.
Instead, I want you to think about 41 dollars.
Do you think you could save 41 dollars today?
See, if you can take a deep look at your expenses, how much money could you honestly say you could save per day?
If you can squeeze your budget a little bit and save 41 dollars a day, you will have close to 15 thousand by the end of the year.
Of course, it may seem hard at first, but I bet that if you really put in some effort, you might be able to cut your daily expenses by more than 41 dollars.
What most people don’t realize, is that their vices can cost them hundreds of dollars a week.
Of course, when you think of vices, the first thing that comes to mind is cigarettes and alcohol, but vices can be as mundane as simply ordering take-out with uber eats or postmates.
You see, let’s say that you work just an average 9 to 5.
Perhaps you may not have the time to pack your own lunch.
Instead, you buy your lunch from the local truck stop.
And when you get home you might be too tired to make your own food and you order something through a delivery app.
If you do that every day, you might waste 12 dollars on lunch, and for dinner.
if you order some take out you might waste close to 30 dollars, after the delivery fee and tips.
That’s close to 40 dollars a day in food alone.
Now imagine how much less you could spend on food if you instead took a day out of your week and started to meal prep for the entire week.
The savings could be tremendous as you could literally make a healthy and filling lunch and dinner for less than 10 dollars a day.
That’s only for food.
Imagine how much more you could save if you could cut down on services like Netflix, Hulu, Disney plus, Paramount Plus, Peacock, and HBO Max….
You could see where I’m going with this.
Saving money doesn’t have to be hard.
Don’t think about that big scary number at the end of the tunnel.
Focus on where you could save today so that you can achieve that big goal without any struggles at all.
Now that’s easier said than done, we all struggle to keep our impulses at bay, and we often fail.
But if we could reign them in, we could achieve the impossible.
Tip#2: Impulse control
One of my favorite quotes of all time is by Oscar Wilde when he said,
“I can resist everything, except temptation”.
And this is soooo true!
One thing that we need to understand about how these impulses work, is that you don’t actually get a huge dopamine hit when you purchase that product.
In fact, pretty much after buying something you have wanted for a while, you sort of forget about it after a few days.
This is because, many studies have figured out that the brain doesn’t actually get its dopamine from the item itself, but rather for the anticipation of acquiring said item.
That’s why companies and stores all across the globe have spent billions of dollars to try to find ways to exploit this deep-seated circuit.
They use tricks like the classic “On Sale” signs, where they trick you to believe you made actually saved some money for buying something that was on sale.
When in reality you just wasted some money on a product that you didn’t need in the first place.
And these stores are quite crafty, they also do other things to encourage you to waste more money.
They sometimes set a threshold for how much you have to purchase to get free shipping.
They also place low-priced items next to expensive ones to make the cheaper one a “must buy”.
Or my personal favorite, where they literally rearrange the entire store every few weeks so that you feel like you discover new products every time you go shopping.
My point is that these companies have spent billions of dollars trying to squees as much money out of you as possible.
They literally use temptation as their main selling point.
That is why I will share with you my personal strategy to deal with these situations.
I call it the 2-week rule.
Wherever I see something expensive that I really wanna buy, I wait two weeks.
If by the end of those two weeks I still want to buy whatever it is I wanted to buy initially, I buy it no questions asked.
But what happens 99.9 percent of the time is that I simply realize that I really didn’t want those things in the first place.
It was just an impulse.
By abstaining for a couple of weeks, I find it much easier to fight off temptation.
Tip#3: Automatic Deposit
The Third tip on our list is to set up automatic deposits on the same date as your paycheck.
This is a little straightforward, and simple to do.
All you gotta do is take 10 percent at the top of your paycheck, send it to a savings account automatically and pretend that you never had that extra 10 percent.
I know it may sound crazy, and you might be thinking that it’s impossible to do.
But trust me, we are great at making the ends meet.
We’re resilient.
And if we can pretend just to have 90 percent of what we currently earn, then think about how much we could have in just a matter of months.
Personally, I’d like to think about this as a “self tax”.
Where my future self is handing me down a 10 percent tax of all my earnings so that he can live a chill life drinking margaritas at the edge of the beach.
And by keeping future me happy, that would make me happy… that is if time travel is closed-loop.
But let’s not go there.
Alright, so let’s say that you’re earning the median income in the US of 67 thousand dollars a year.
If you took out 10 percent of those 67 thousand dollars, you would have close to 7 grand by the end of the year.
Not too bad, considering all you had to do was set up an automatic transfer between your accounts.
How long could that have taken you to set up?
5 to 10 minutes? I
don’t know about you but 7 grand for 10 minutes of your time sounds like a pretty sweet deal.
Tip#4: Would You Rather?
Tip number 4 on our list is pretty short and sweet.
All you gotta do is simply ask yourself this question whenever you want to make a purchase:
Would I rather have the money?
We often get caught up in whatever thing we wanna buy.
We see the latest Ipad on BestBuy and think to ourselves:
that’s awesome!
I can load pages and apps about 2 seconds faster than my current one!
Imagine how many minutes I can save over the years!
But if you look at the price tag, you can see that they can go sometimes for close to a thousand dollars.
This is where you gotta ask yourself, “would I rather have the money than the actual Ipad”.
Most of the time, you realize that it would be much more valuable to hold on to your money, wait until whatever thing you want goes on sale, and save yourself a nice chunk of money.
How many things you own right now, that you wish you hadn’t bought.
If you can take an honest look at all your belongings, how many of those things would you rather have the cash for?
It’s a simple yet powerful question that will put your decisions into perspective moving forward.
Once you get used to making this mental calculation not only will you be able to save money, but it will give you a clearer view of the relationship between money and value.
And hopefully, you will be able to adopt this framework in every purchase you make moving forward.
And understand the value of your time.
Tip#5: Value of your time.
Tip number 5 plays directly from the previous tip.
If you can understand the relationship of a thing you want to buy with the value in cash;
You gotta take that framework one step forward and understand how much time that thing is worth.
Now, this is where things get interesting.
Let’s say you wanted to buy the newest phone, for around 800 dollars.
I want you to think how many hours of your day would it take you to buy that phone?
Perhaps you’re doing amazing, have your own business and it would take you a few working hours to make those 800 bucks.
But for the vast majority of us…
That’s not the case at all.
If the median income for the average American is 67 thousand dollars, that’s around 32 dollars an hour.
Meaning that if you wanted to get that shiny new phone you would have to spend 25 hours at work to earn those 800 dollars.
Now you might think it’s worth it, but imagine how many things you could do with that extra free time.
Studies have shown time and time again that we have so little free time.
Imagine how much better you could be if you could take a few more hours out of your busy schedule to take time for your own hobbies.
Or simply to spend more time around your loved one.
Time is the one commodity we can never earn back.
Use it wisely.
Tip#6: Visualize Your Progress
Tip number 6 in our list is to look for ways to visually see your progress.
One thing I really like to do is set up a savings account and as soon as I save some money, I whip out my phone and manually transfer those savings into that account.
That way, I can see it grow and grow slowly over time.
For example let’s say I really wanted to go out drinking with my buddies this weekend.
Instead of going out to a bar in the middle of the city and spending 9 dollars per watered-down beer.
I could instead buy some cheap beer and some snacks with a fraction of what I would have wasted had I gone out to some random bar.
And now the money I saved would go immediately into my savings account.
I really do think that once you start these your savings accumulate, you will be hooked and save more and more.
And if seeing numbers go up and up is what gets your motor running, wait until you hear this next tip.
Tip#7: Investment
Tip number 7 is to start thinking about how your money could grow if you put into the S&P 500 for 40 years.
There’s this very handy only calculator online where it helps you calculate how much would your savings turn into if you invested in the S&P 500 today.
See maybe I am a bit weird, but a calculator like this one truly helps me put things in perspective.
Let’s say I wanted to get a new laptop, even though the one I have is working perfectly well.
If I spend 1200 on a new one today if we put that in a calculator with a 10 percent yearly return on investment.
Those 1200 dollars would turn into 53 thousand dollars in future money…
Now would you rather have a slightly faster laptop tomorrow or 53 thousand dollars in 40 years?
I think the answer is pretty obvious.
Trust me, if you start using a calculator like this, it will change your perspective on everything you buy.
Now when you see the latest video game on the shelves for 60 dollars, you gotta think about it 40 years in the future.
Would you rather have 2,700 hundred dollars 40 years from today, or would you rather play Elden Ring?
The answer is pretty obvious… more Elden Ring, please!
Of course, you have to reward yourself every once in a while.
But having the mindset of the value of things in the stock market 40 years from now, will make it a lot easier to say no to a lot of daily vices.
I know that it’s not easy to break all these mental barriers.
After these are very things that kept our species alive for thousands of years.
But, if you can break these shackles, you’re going to see finances in a completely new way.
Financial freedom is not some made-up phrase online gurus make to sell you their useless courses.
It is a reality.
And most importantly, it is doable.
It won’t happen overnight, and you might need to rip the fruits of your labor for decades.
But at the end of the tunnel, the line shines brighter.
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