We all know saving money should be a priority. But do you actually pay yourself before your pay bills? Practicing frugality by identifying the small unnecessary purchases can amount to large savings over the course of 6 months or a year. Do a careful analysis of your budget and identify those unnecessary purchases or bills that can create an opportunity for savings. We've all heard experts talk about cutting back on the daily coffee purchases. If you're not a daily coffee drinker it could be as simple as downgrading your cable package, switching cell phone carriers, cutting back on lunch purchases, switching car insurance companies or buying one less cocktail every time you go out. The point is to become intentional about saving. If you're able to reduce spending and save $20 a week, get EXCITED. I know $20 can't buy a lot, but if you apply the principle of time and compounding interest (as discussed HERE) the results can be astounding. If you managed to save $20 over the course of 12 months, that's $1040. If those funds were placed in an investment account with an average annual rate of return of 7%, with continuous weekly deposits of $20 over the course of 10 years, you would have $15,309 as indicated in the graph below. Never underestimate the power of small sums of money and the impact it can create to bring big returns.
Saving larger sums of money can have exponential impacts on investment returns. This could involve a decision to buy a Honda Accord over a Mercedes or choosing to buy a house that's $100,000 less than your pre-approval rate. Several years ago when I purchased my Accord I had the option of buying the basic V4 engine for $16,000 or the V6 option for $22,000. Guess which one I went with? I went with the cheaper option. I'm not suggesting that more expensive vehicles with upgraded options aren't nice to have. I made a conscious decision that it was more important to save $6,000 on that purchase. During the time I purchased my car I had a friend who was car shopping and I suggested a Honda Accord. His response was, "I wouldn't drive a Honda". Instead he spent about $31,000 and bought a BMW. There was nothing wrong with his decision but if creating wealth was a priority perhaps he would've chosen differently. Actually that goes for both of us. Car purchases can be a major drag on net worth when you're in your 20's and 30's because these are the critical years for jump starting a retirement nest egg and having time and compounding interest on your side. Every big purchase decision you make should have a forethought on the impact of your net worth.
In both instances, making smarter money decisions and choosing to spend less creates an opportunity to save, invest and remain on the path to building wealth. I would love to drive a Mercedes, live in Manhattan, dine out twice a week and frequent random Broadway plays like Hamilton at $3500 a pop. The truth is, we can't have everything. You have to become intentional about creating priorities, setting goals and managing expectations. Decide what's important and what's not. Spend on things that are important and spend less or nothing on the things that aren't. There's a saying that says "Whatever your mindset is your bank account will follow".
Choose today to become INTENTIONAL about creating opportunities to save. Spring into Action. Be Active about your goals. Don't wait for a $10,000 salary increase to start making changes. Start TODAY. Apply the principle of time and compounding interest to every financial decision you make and you will see your net worth start to grow year over year.
Join me in the $20 Weekly Challenge. I've already identified where I can reduce expenses and I'll commit to saving $20 a week. I'll provide updates on my progress every couple of months
What are some areas in your finances that can create an opportunity to save $20 weekly? Drop me a line below and let me know if you plan to join the challenge.