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Wealth Creation Starts with Savings

My idea of a savings account used to be a yet-to-be-maxed-out credit card! Funny thing about having a cash reserve – you can’t appreciate it until you have it. Once you experience it, you’ll never go back to your old ways of living on the edge. My first savings goal was to have six months’ living expenses in a money market account. It seemed like a huge and impossible amount that would require years of savings, but I got there in one year. I set up an automatic savings plan to have money deducted from my paycheck before I could get my hands on it. When money appeared from unexpected sources, it went in the savings account, too. This seemingly small step was actually the first step to wealth attraction and the start of true wealth creation.

A reserve savings account is a cash cushion to protect you from life’s unanticipated yet inevitable bumps. It is for when all four car tires go flat at once. For plane tickets when your grandmother breaks a hip. It is to help you through life’s tough times – when you lose your job or have an accident. You may not be living in wealth and prosperity, but when you have an emergency savings account, you can get through these times without worrying about the money.

Having six months to two years of living expenses socked away gives you a tremendous advantage at work. You are much less likely to tolerate working with an annoying client or customer and more likely to put in place firm and clear boundaries. If you are desperate for cash, you’ll be more likely to compromise your standards and work with anyone who comes along. You will be more likely to enforce your boundaries and maintain your standards if you know that in a worst-case scenario you can always quit and find a better job. A cash reserve savings account is one of the best strategies for wealth because – thanks to the peace of mind it provides – it helps you attract success. So stop living in fear and start saving!

Save 20% of Your Income and Achieve Financial Freedom

Financial independence = having enough money or passive income so that you don’t have to work for a living.

Sound too dreamy to be true?

When your passive income exceeds your expenses, you are financially free. Those revenue streams usually come from business income, rental income, royalty income, investment income or any combination of these. But, if you think financial independence is only something achievable by the wealthy, it is time to change your perspective. The real key to financial independence is to start saving 20% or more of your current net income. Have it automatically deducted from your paycheck or checking account to go into a passive, indexed, low-cost mutual fund (I use Vanguard.com). The automatic deductions are the real secret. You want to automate your financial independence. If you don’t have enough to open an account, start with a regular money market account at your local bank until you do. You are now on your way to financial freedom. Now that is a goal worth saving for!

Either cut your expenses by 20% or increase your income by 20%. Better yet, do both and get there twice as fast (for most people, the fastest and easiest way to start is to cut your expenses).

One of my colleagues who is now in his fifties, started regularly stashing away 20% of his income in his 20’s and now, without struggle, with just his regular jobs, he is a multimillionaire. That was all it took. Just 20% of your net income going into low-cost, indexed mutual funds over a period of decades. The secret formula for financial independence is consistent savings, well-invested, over time. The tremendous payoff in security, freedom and confidence is well worth the minor lifestyle changes you need to make in order to save 20%. If you really can’t save 20%, start with 10% or even 5% and work your way up. Set up your automatic savings plan so you don’t have to worry about the details. Then you can relax knowing you are being responsible for your future.

If you are starting your savings a bit later in life (in your forties or later), then you may need to save much more aggressively or come up with some alternate plans for reaching financial independence. I find Todd Tressidder’s Ultimate Retirement Calculator http://financialmentor.com/calculator/best-retirement-calculator a very helpful tool for figuring out whether you are saving enough for retirement or not. Nothing like hard, cold numbers to shake you up a bit! Make sure you play around with the inflation figures and run a best case scenario of 3% inflation and then try a worse-case scenario of 6% inflation. It changes everything, making inflation-adjusted income essential for most people to secure a comfortable retirement.

If you are interested in private 1:1 life coaching on lifestyle changes, financial freedom or anything else, check out our team of Accredited Life Coaches here.

 

Talane Miedaner
Talane Miedaner is a Master Life Coach and the founder of LifeCoach.com. She is the international bestselling author of Coach Yourself to Success: 101 Tips for Accomplishing Your Personal and Professional Goals (McGraw-Hill, 2014), Coach Yourself to a New Career as well as The Secret Laws of Attraction.