When you think about
millionaires, the last thing that comes into mind is saving money because the
purpose of becoming a millionaire is to stop saving money and finally enjoy the
extreme pleasures life has to offer.
Unfortunately, that's not
how it works. Millionaires are in the frontline when it comes to saving. Many
of them even save as much as 99% of their income.
That's why it's quite
normal to come across someone who looks average when he has assets worth
millions of dollars.
Because saving money as
early as possible is the key ingredient in becoming a millionaire. Of course,
there are opposite examples when people founded a start-up that changed the world
overnight.
Suddenly, they went from
living with their parents to driving Ferraris. However, they are a small
percentage.
The overwhelming majority
of wealthy people have gone through a gradual path that took them decades.
And saving money was the
essential part of it. Let’s say you are 20 years old, and you have saved 10K
dollars which is reasonable, and let's assume you are going to save another 1K
for the next 40 years.
Saving a thousand dollars
a year is nothing. That's 83 dollars a month. But in 40 years, with the power
of compound interest, it will turn into $939,444.37. That's almost a million
dollars.
Basically, you can become
a millionaire just by saving 1K dollars a year. Of course, if you can save more
than that, then you can become a millionaire much faster.
That's why here in this
blog post, we are going to take a look at five ways rich people save money. If
you are ready, give your love and support to your website. let get right into
it.
TAX-LOSS HARVESTING:
At first glance, it
doesn't seem very clear how that is related to saving money. We
have already discussed a few times how it's impossible to build wealth without
investing.
Investing is the key
ingredient in building wealth. But with investing comes
risks, and there is no way to investing without making some losses.
And Tax Loss Harvesting
is when you sell an investment at all a loss to reduce your tax bill. At
first glance, it doesn't make sense. Why would you purposely lose money?
Let me explain. Let's
say you are a professional investor and you have multiple stocks in your
portfolio.
Your stock "A"
increased by 300 thousand dollars which is great. But unfortunately, your stock
"B" decreased by 25 percent, your 200 thousand dollars investment now
worth only 150 thousand dollars.
And let's say you want to
sell 50 thousand dollars of your stock A to have some cash. Ideally, you should
be paying a 15 percent capital gain tax (7.5K dollars).
But there is another way,
sell your stock B first for 150K dollars and buy a similar investment for the
same amount ($150K) to realize your loss.
Since you have a 50 thousand dollar of realized loss, you can deduct it from your tax bill. So, if you are selling 50 thousand dollars of your stock A, you can deduct the $50K loss.
Boom, your tax bill is
zero! Imagine how much you can save if we are talking about millions or
hundreds of millions of dollars.
It’s one of the most
popular ways how rich people save a fortune by avoiding taxes.
THEY FOCUS ON THE BIG DECISIONS
They focus on the big
decisions. There are many ways to save money, and often small gradual steps do
make the biggest difference in the long run.
However, big wins also
play a substation role, and if you get them all right, you could be saving more
than you could possibly imagine.
When people go to a job
interview, they hope to get the job without much thinking about the salary.
Of course, everyone wants
a higher salary, but very few people have the guts to negotiate. Think about
it, let's say the salary for this position is 70K dollars.
And let's assume you come
prepared for the interview and give a really good first impression. You know
you are hired by the way the interviewer is talking to you.
So instead of settling
for that 70K, if you have the guts to ask for an extra 10K, congrats you have
saved yourself an extra 10K dollars and if you remember the example we talked about
in the beginning of the blog post, that 10K with an additional 1K a year could
turn into a million in the long run.
Most people would not
negative because they are afraid of rejection, but what's the worst thing that
could possibly happen. You will get that 70K at best.
But in order to
negotiate, you have to come prepared for that interview. Most people come to a
job interview barely knowing anything about that company.
All they want is to get
hired as soon as possible. Imagine coming to an interview where you could say:
this is what your business does, and this is how hiring me is going to help
your businesses because I have these kinds of skills.
As an employer, you have
no idea how big of a difference saying something like that would make. But It’s
not just about the job interview.
When you are getting a
mortgage, lowering your mortgage rate by a single percentage would make a huge
difference but to do that, you have to build your credit score and spend some
time looking for a good deal in the market which most people don't pay much
attention to.
AUDIT YOUR SPENDING ONCE A MONTH:
If you cannot measure it,
you cannot manage it. Most people live Pay-check to Pay-cheque and aren't aware
of how they spend that Pay-check.
Yes, they have an
overview of how much they spend because they spend their entire Pay-check, but
that's pretty much about it.
However, that's not the
path to financial freedom. Wealth is accumulated over time through saving and
investing, and the only way to save money is to know first how you are spending
it.
When you take a deep look
into your spending’s, that's when you find out how exactly are you overspending.
It could be on entertainment, subscriptions, or eating out way too much.
Dining out is usually
significantly more expensive than cooking at home because you are not just overpaying
for food but also paying for the chef, a place in the restaurant, the waiter, and
so on.
You don't see that number
when you place an order, but that's usually included in the cost of your
meal.
Rich people spend at
least a few hours a month reviewing their expenses to make sure that that they
aren't overspending and taking every opportunity to save as much as they can to
invest.
BUY BULK:
Let me tell you the
easiest and an effective way to save money that pretty much anyone who is
reading this blog post can.
The number one thing to
keep in mind when buying bulk is that it's not the price of the item. It's the
price per unit (or ounce) that matters.
There are things that you
need on a daily or weekly basis. For example, toothpaste. Like it or not, it's
a necessity. You are going to need it today, next month and next year.
So instead of buying it
every month, you can buy bulk because usually they are sold at 10 or 20 percent
discount.
Of course, you are not
going to save a fortune on one toothpaste but imagine if you do that across all
of your spending’s.
Suddenly you can reduce
your spending’s by 10 or 20 percent. Finally, you will have some extra cash to
invest. Secondly, every grocery store, especially hypermarkets, has a very
strict supply chain.
Let's take the example of
toothpaste again, their supplies don't usually supply them with toothpaste when
it's over in the shop, but rather once every week or 2 weeks, depends on the
product, but usually, stores don't often sell everything before the next
shipment arrives so they lower prices to get rid of them as soon as possible
and that's when you should be buying.
Sometimes they have
discounts up to 50%, why buy that now when you can wait for a little and buy
bulk with a 50 percent discount.
Again, you are not going
to save a fortune if you do that once, but if you turn it into a habit, you are
going to save a substantial amount of money every single month.
NEVER PAY CREDIT CARD INTEREST
U.S. credit card debt hit
a record $930 billion, with younger Americans carrying most of that debt. And
that number is rising every single year. Credit cards are a mystery.
They have their positive
sides where you can build a credit score and use leverage to maximize your
income but on the other hand, paying credit interest is one of the dumbest
things you can ever do.
That's why rich people
never pay credit card debt and save fortunes. The average credit card interest
is around 15 to 20 percent.
In comparison, interest
on your mortgage is around 2 to 5 percent, depends on many factors. Right now, it’s,
for example, around 3 percent.
Do you see how
inefficient it is to pay a credit card interest, especially if you spend a lot?
Every credit card has a certain period where you are not charged any interest.
It could be anything from
30 days to 90 days. So as long as you pay your statement balance in full by the
due date, you are not going to be changed any interest.
The bottom line is, you
are not going to save a lot if you are not making a lot of money in the first
place.
So, your first priority
should always be maximizing your income, but making more money while not saving
most of it is also not the best strategy because your only way to financial
freedom is investing.
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Thanks for reading and until next time.
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