Simple Steps to Grow Your Savings

I want to get back to a theme that I have spoken on before, on how folks with modest salaries can live well, enjoy their money and save for retirement at the same time. I have shared some money saving tips and "live well" ideas before. Today, I'm going to talk about how folks with normal incomes can take simple steps to save for retirement and grow their assets.

Okay... so, studies have shown that how much money you make is not as important as how much you spend. In fact, one study by mutual fund giant Vanguard found that those who WERE saving enough for retirement had, on average, earnings of $70,000 and assets of $200,000, but a group that earned $83,000 each year only managed to save $38,000, that's 81% less than the assets of lower earners. The study found that this group - higher earners with low savings - essentially were higher spenders who were not saving enough for retirement and did not have a properly thought out budgeting and savings plan. The emphasis here is on the amount these people are spending, versus the amount that they were saving. It's spending that is most important.
Basically, those who fail to pay attention to spending tend to consume a lot more and save a lot less. The study also found that budgeting and monitoring your budget on a continuous basis had a direct impact on the growth of your assets because it put a rein on spending. Studies also show that folks who set aside enough money for retirement every month - as the first thing they do, typically at the beginning of each month or through automatic deductions from their paychecks or through deposits soon after they collect their weekly or monthly checks - correctly prioritize the need to save above the need to spend, and build up a nice nest egg even though they are not the highest earners in their neighborhoods.
Such folks also tend to push hard for bargains, do their research to get the best deals possible, do some basic math before they commit to making a purchase, make planned purchase decisions and regulate their own behavior on basic things like going shopping, going to restaurants no more than a few times a week with a set weekly dining budget, etc.
Savers also do a good job of tracking receipts, maintaining files on each of their spending categories - files for car insurance, health insurance, utility bills, credit card bills and so on - and tend to use online savings tools and calculators to see how they are doing compared to local and national saving and spending patterns. Moreover these high savers tend to save well above national and local averages.
Having a spending and savings plan or even simply thinking about budgeting significantly increases control over unnecessary spending and increases contributions to retirement plans and savings - it becomes a good habit, with strong positive momentum.
Another upside of tracking your spending is that you start to realize where your money is going and start to think of ways in which you can cut down on things you do not really need. Something you would not even notice otherwise.
Such planning also helps you take advantage of the free money offered to you by your employer such as matching 401(k) contributions, pretax health savings accounts, etc.
So, take the journey to explore simple things such as compounding and percentages. You would be surprised how a little knowledge can go a long way. For example, a study done by the University of Pennsylvania found that people who were financially more literate on simple calculations such as compound interest and percentages had a considerably higher net worth of $309,000 vs. $116,000 for those who did not correctly answer these questions. I'm urging you to make a small effort that will have huge payoffs on your path to wealth. And it's so easy these days because there are plenty of free resources online that can simply teach you the basics of personal finance.
Another study found that those who attended retirement seminars saw a 20% increase in their net worth, and that automatic plans for retirement and savings, significantly boost wealth with the power of compounding.
Once you're on the right track with your budgeting and savings, your next challenge is allocating your growing pot of savings so you can live comfortably off it for 20 or 30 years in retirement. This is where you create a diversified portfolio that generates both regular income and capital appreciation, and gets you investing for the long run.
So, it's more about spending, rather than what you earn. It's more about having basic knowledge of simple financial and investment facts rather than finding the next Apple in your portfolio. Sometimes the answers are just NOT that complicated. So take these easy steps that will get you to a goal of living your one best financial life.