Supercharge Your Savings
Savings are an essential part of achieving financial freedom. It turns the financial tables and starts getting your money WORKING FOR YOU, compounding interest in your favor! However, it rarely makes sense to save money whilst carrying any form of debt. Invariably the interest charged on debt far exceeds that achieved with savings.
There is, however, one major exception to this rule and it arises because of the tax system in the United States. In the US, mortgage interest is tax deductable and this dramatically reduces the effective cost of borrowing, making it about the cheapest money you will ever borrow. In other countries like the United Kingdom, there is little or no such relief.
Even so, if all other debts have been cleared and full advantage has been taken of your employer's 401(k) or other saving plan, any spare cash should go into reducing your mortgage. It's one of the best and safest investments you can make.
Why Bother Saving?
For many, saving seems like a very negative process. Always deferring things for sometime in the future or never. This belief is mistaken and I think comes from the over-emphasis on retirement planning. Whilst retirement planning IS very important, for younger people who want to maximise life, it seems very dry and a long way away.
In reality, saving is all about how we live NOW. By moving away from a "spend now, pay later" mentality that drives people into debt, saving encourages prosperity and financial growth. And here is the truth of it. If you have debt, you are a SLAVE to the debt - your creditors own you. Your daily and life choices are taken away from you, everything is geared towards paying your debts. You cannot simply choose to do something without worrying about the financial fallout.
A person with savings, however, is a person who has choices. Such a person is no longer running in fear of debt and is master not only of his money but also his life. Such a person is FREE to make any life choice he chooses. Change jobs, take a break and go travelling, spend more time with the family - whatever.
Retirement planning is essential. No long term financial plan would be complete without it. But there is always one important thing to remember and it is the core reason why all the work we do on this site is so important for everyone.
LIFE IS FOR LIVING!
Savings are not just for retirement, they are for advancing yourself and enjoying life. Buying that car you dreamt of in CASH, being able to walk away from a job you hate and go find one you LOVE. Savings give you the freedom and flexibility to make your life choices.
Key Saving Factors
There are three key factors that affect how your savings will grow.
- The amount you put aside for saving each month
- How long the savings are allowed to compound
- The rate of return earned
Start Savings Early
Over the long-term of any savings growth, the largest part of that growth will be interest earned. It makes sense to start as early as possible to allow time and compound interest to work their magic.
The basis for any investment lies in the concepts of risk and return. Generally the higher the risk, the greater the return. What level of risk an individual is happy to take on is a personal choice. When choosing how to allocate investments there are two types of risk that need to be considered:
Generally a better approach is to find a balance between your allocation of fixed funds ( eg: money markets, bonds, cds) and variable investments (eg: stocks , funds ) and to diversify your investments as much as possible.
- Losing Invested Money - This is always a concern and often results in people investing conservatively to avoid loss - which brings low returns and poor income.
- Losing through Inflationary Devaluation - Not earning enough to cover the erosive effect of inflation
Table Of Different Investment Styles
|Long Term Growth||25%||75%|
|Growth & Diversification||40%||60%|
|Safety & Growth||50%||50%|
|Safety & Diversification||60%||40%|
If you are interested in exploring your savings growth or how much you need to save to achieve a particular financial goal use our Savings Growth Calculator.
It is important that a certain percentage of your savings are accessible at fairly short notice to allow them to be used for any project or expenditure you choose to make.
Benefits Of Saving
- Debt Free Living (excl. mortgage)
- More life choices
- Your money is working effectively for YOU.
- No need for credit
- Less financial stress and anxiety
- Retirement, Wealth and Security
- As savings increase, less risks to insure - saving money