Do you want to save money but don’t know where to start? Do you get confused by all the different and conflicting advice on saving money? Never fear, in one short post I will show you how to save money. Prepare yourself for the secret to saving money:
Income – Expenses = Net Income
Positive Net Income = Savings
Oh, now don’t go acting all disappointed! This is the foundation to building wealth for the long-term. You want to be rich, right? You want to have money? Well, to have money you need to not spend all your money.
There are a lot of trappings around this idea, like budgeting, tracking spending, and managing bank accounts to maximum effect, but when it all boils down: to save money, you must make a gap between what you earn and what you spend.
Frequently, you’ll hear financial planners go on about making sure you don’t overspend on lifestyle. That’s because reducing spending is the quickest way to create a gap between income and expenses. The problem with this is that 1) you can only reduce spending so much and 2) it generally works temporarily, but isn’t much of a permanent solution.
Sigh. Yes, I understand that you, person-who’s-going-to-comment-that-I’m-an-idiot-and-that-cutting-expenses-is-the-responsible-solution-and-can-work-long-term-even-if-it’s-unpleasant, are one of the few with the character and work ethic to live in simulated poverty while earning a middle-class income in order to save. You are truly a beacon of moral rectitude to us all. But, understand that most people (myself included) can only live in simulated poverty for a short period of time before you just can’t stand it any more. That’s why I advocate creating the difference between income and expenses by increasing income.
Not only does increasing your income give you the wonderful benefits of making more money (yay!), but it will increase the amount of money that is used to determine you Social Security benefit,* generally, pension benefits,** and other income-based calculations suck as many disability calculations. It also gives you more dollars to spend now. What’s not to like?
So, to sum up, the secret to saving money is to create a difference between your income and your outgo.
* Social security calculates benefits based on an indexing of up to 35 years of earnings. Increase your earnings, and you will increase this average.
** Lucky duck.