I’m still waiting for the day that I overhear someone say “Crap! I saved way too much.” It does not and I’m confident it will not happen. That’s because we all want to save more. The problem is that it’s difficult, especially when you’re a recent college graduate just starting out. To make your life easier, I’m going to share the best budgeting advice I’ve ever received. Don’t think of it as “budgeting for beginners” because I still follow this method of saving years later.
Everybody Hates Saving
Saving isn’t much fun. It’s the complete opposite of instant gratification. When we’re saving, we’re simply delaying gratification. We typically only see the benefit when we’re facing an emergency and don’t have to rely on credit. At this point we rarely take a second to think, “Hey, I’m really glad I did this.”
Why Is Saving Difficult?
Saving requires discipline and often times requires us to modify our behavior. If I’m used to eating X and Y, it takes a lot of effort to begin eating A and Z.
Saving is typically a series of decisions made daily. That’s why it’s so hard. That’s why my tip is so great. It requires only 2 good decisions each year. Sounds easy right?
Just The Tip
Here is the best budgeting tip I have ever received (and the tip I still use today). A lot of us get paid bi-weekly. Therefore, we budget our monthly expenses around receiving 2 paychecks. This means we budget for 24 paychecks (2 per month). There are actually 26 pay periods each year meaning there should be 2 paychecks each year that aren’t accounted for. If you make $40,000/year, you should be able to sock away AT LEAST $3,000/year from these additional paychecks.
Super easy. I suggest you try it.
Will 3k Really Change My Life?
Absolutely. Lets say you invest the $3000 that you manage to save every year. If you begin to sock this amount away when you’re just beginning to work (at age 25) then by the time you retire (age 65) you will have amassed a good chunk of change. And remember you don’t have to change the way you currently live!
Calculation for an average return of 5% and 10%:
Initial Contribution: $3000
Annual Addition: $3000
Years to grow: 40
Annual Return: 5% and 10%
Future Value: $401,639
Future Value: $1,596,333
HELLO MILLION DOLLAR CLUB!
If this seems ridiculously easy, that’s because it is! Quite honestly, I think these numbers are modest. This is under the assumption that you’ll make $40,000/year for the next 40 years. If we are constantly striving to maximize our earnings, the two paychecks each year should AT LEAST double by the time we’re 65.
Follow this very basic tip and in 40 years you will thank me.
Readers: Do you get paid bi-weekly? If so, is this tip old news to you?