Do you want to build wealth so that you can become financially secure?
Many people start by focusing on learning new ways to invest, which is important. However, the wealth you create is also influenced by what you spend your money on once you have it. Many of us fall into the trap of spending more money as we make more, and so we are not really getting ahead. We all spend money on things each day without thinking, and with today’s cashless society, a simple swipe of the card makes impulse spending easier than ever.
Small Amounts Saved Over Time Can Make Millions
Here’s the reality.
Small amounts saved and invested over time make a huge difference. If you cut back on unnecessary expenses, spend less than you earn, and invested the money, you could end up saving millions by the time you retire.
And this is where your daily latte may be costing you more than you think. Instead of spending $5 per day on a coffee on the way to work, you could make it at home and save the money instead. Assuming you saved the money at the end of each month in an S&P500 Fund, which averages a 9.8% return, you would be saving $907,828.42 over 40 years. And if you saved more of your wasted spending each month, you would be a millionaire.
That’s why starting the saving habit early is important and why it’s a financial lesson I encourage you to teach your children so that they can benefit from the compounded returns over time.
Now, I am not suggesting giving up coffee. If your goal is to save more money, then you need to focus on cutting back on any unnecessary purchases.
The latte is just one example of wasted spending. How many other small things do you regularly spend money on that you could live without or cut back on? How many free trials have you signed up for and never cancelled? Are you getting the most from your gym membership? How many streaming services do you pay for that you rarely use?
Be honest with yourself.
The point is we all waste money each month. If you cut multiple subscriptions or even a large one like the gym membership, you could be saving yourself thousands each year.
Step 1 Track Your Spending Each Day
If you are not doing so already, I recommend that you start tracking your spending. The easiest way to track your spending is to do it automatically. Online tools such as Mint can help make your life easier, or you can use Apps such as iExpensit to record your spending. Personally, I find having to record each expense forces me to think about what I’m spending money on. This results in me buying more of the things I need and less of the things I want. And you will start to feel more in control of your money and know exactly where it all goes each month.
Step 2 - Eliminate Unnecessary Expenses
Next, pull out your bank and credit card statements and highlight all of the recurring debit amounts that are draining your accounts each month. Are there any subscriptions that you have not used in the past 6 or 12 months? If so, stop them. Review how often you go out to restaurants and order takeaway food each month. Then ask yourself which ones you can eliminate, or cut back on right now?
Step 3 – Cancel unused subscriptions
Take action and schedule some time to cancel any unused subscriptions.
If you found this useful, I also recommend checking out our post on the 5 Money Habits to Start Today.
In summary, with interest rates and the cost of living continuing to rise, there has never been a better time to get on top of your finances. By controlling your expenses, you will feel more confident about money, be less stressed, and be better prepared to handle life’s challenges.
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