How to manage money: save it
NPR’s Morning Edition is doing a series this week on borrowing money. Seems like a good topic since the economy is in a big bunch of hurt, caused mainly by over-extended credit.
Monday’s episode really struck me as they explained how research shows that the average American today saves about 1/2 of 1 percent of their income. That’s 0.5%. That’s like … nothing. In 1982, Americans saved an average of 11% of their income. From 11% to 0.5% in about 25 years. That is staggering.
So, I’ve decided to start my own series here on the blog. I’ll be covering how to manage money. This post is step one and in it I am going to share with you the secret to financial bliss. Wait for it … here it is:
Spend less than you earn.
How much less? I say at least 10% toward retirement, then another 10% at least in non-retirement accounts. All together, that’s 20%. More would be even better.
“But what am I saving it for,” you ask. See, that’s the big question. Why save money if you’re not ever going to spend it? You can’t take it with you, right?
But here’s the little secret — it takes money to make money. If you save up money, you can then invest that money into efforts that will produce more money, until eventually you can earn substantial income off of the assets you have accumulated. This is what builds financial freedom.
I don’t believe that enormous wealth is necessarily a good goal to shoot for, but I do believe financial freedom is a good thing which can be achieved by most anyone with the discipline to spend less than they earn.