If saving around $30,000 in a year doesn’t sound like a lot to you, you can close this article now as it’s not written for you.
On the other hand, if you would LOVE to have an extra $20 to 30k just sitting in your bank account at the end of the next 13 months, then read on, because this article will show you the exact steps that I used to put an extra $25,000+ in a bank account in a 1-year period, while actually spending more than the average single male in my area.
The system I used is not perfect, but it is a formulae that will cause you to accumulate significant amounts of money, if you follow it to a T for 12 months at least. And it will not cause you undue pain or deprivation.
The actions here are not specific to any country, industry or life stage. They are based on universal principles that I have seen work across different industries, time periods and for people of different ages and ethnicities.
By the way, for those skeptical, this plan does not involve a Ramen diet or any other ridiculous lifestyle change.
I am a single male with no dependants. As you can see from the below, I lived quite a comfortable lifestyle during the period I was putting away a significant amount of cash, spending almost $6 grand in several months:
Average monthly spending was $5,326 – this is similar to what a family of 4 spends in some parts of the country, according to the Family Budget Calculator from the Economic Policy Institute. Average spending in my area for a single person would be closer to $3,300 per month, so clearly I am not pinching pennies by any means.
Now here is the graph that shows cash growth over a 13-month time period:
As you can see I started with an account value of $3,417 at Time 1 (September). 13 months later, account value was $32,729, or +$29,312 in usable cash.
Modifications & disclosures: $4,800 of the above was due to capital appreciation from investments; $973 in cash is not counted towards the total cash value as it was in-transit between two accounts at the time of the screenshot.
Okay, now let’s talk about the exact method you can use to accomplish this same thing.
There are just two steps. The first and most important step is, you must hold the correct mindset to achieve this.
Here are the 5 “prosperity mindsets” you must hold:
FUNDAMENTAL MINDSETS OF PROSPERITY
- Be grateful every day. Start with being grateful for the abundance you do have.There is always abundance in your life, but usually you are ignoring it. If you are unemployed, you have an abundance of time, and everyone who is employed envies you! Not a day goes by without abundance. You have an abundance of air you breathe. You have an abundance of steps you can take. Focus on abundance and you will receive abundance.
- Do hard things that need doing, even though you have to do them for free to start. My experience has been, even if I had a paid job, I only got promotions when I started doing another job (or two or three other jobs) for free. Eventually, after working for free for a while, I started getting paid for it.
- Be egoless. You will start working for free and doing grunt work. Don’t have an ego about it. Doesn’t matter if it’s shoveling horse manure — you’re not “too good” for it. Even if you’re a Varsity player on the JV team, you don’t gripe or complain about it. You are going to do a fantastic job, and be happy about it. Do a great job. Do the best job you’ve ever done. Your goal depends on it.
- Have an extraordinary attitude about the work. What is an extraordinary attitude? No matter what obstacle or blockade, you have a good attitude, you turn up for work, and you work really hard to give your best. You act as if every single day will be the last day you will be able to work, meaning you give it 110%. You go above and beyond. You don’t complain, because complaints are unworthy of you.
- As your capacity to work expands, always be looking for bigger and harder problems to solve. This is how you continue climbing the income ladder, the purpose ladder, and the fulfillment ladder. If you get complacent and satisfied with where you’re at, the energy and money will stop flowing to you. Look to help more people, at a bigger scale, or help your circle of people do even better, or solve their next problem. Don’t stop; press on.
Those attitudes are the most important thing. If you cannot grasp those mindsets and implement them into your life you will not be successful. If you CAN, however, you can be successful in whatever you turn your mind towards.
Now, let me share with you the hidden, ultra-sexy, ultra-secret #1 technique that REALLY got me to my financial goal of saving $30,000.
Are you ready? Lean in …closer…I’m only going to whisper it to you once…
I saved 50% of my income.
That’s it! That’s the secret.
Wait, don’t go!….You were expecting something more…magical?
Well, I can tell you, there is no magic: there is just the process of “paying yourself first” and “paying yourself enough.”
Most people will save 10% of their income or 15%. Hogwash. That’s not nearly enough.
Because of inflation, a dollar is worth more today than it is tomorrow; the more dollars you can put to work for you earning interest today, the more dollars you will have earning interest for you tomorrow. And so on.
This is also known as “the power of compound interest” and it will make you a king or ruin you depending on the actions you took 10 years ago (and secondarily, the actions you take today).
So that’s why I am exhorting you, pleading with you, demanding of you, that you start saving 50% of your income. Do whatever it takes. Find a way to save 50% of your income.
Who did I steal this idea from? Why, the super-rich, of course:
The argument goes, “The top 1% have bigger incomes than everyone else so it’s easier for them to save 50% of it.” This is true.
The truism that follows is: “Save 50% of your income today and before long your income will be 50% higher.”
Is this savings rate amongst the 1% a recent trend, perhaps caused by 2008? Let’s look at the historical data…
Apart from severe economic downturns (which are cyclical) the wealthiest among us have pretty much always saved at least 30% of their income.
Now, I’m not saying that’s how you get to be a 1%er — there are many other factors. What I am saying is that if you want to have more money at the end of the year, you need to start by saving more money each month in the year.
Now there is another step, which is a bonus, and that is:
- Get interest working for you, not against you.
Because our economy and banking system is based on interest, you are always either paying interest to others, or having others pay you interest. The goal would be to get the right side of that equation as quickly as possible.
If you are just leaving your cash in a bank account that does not have at least a 1% Annual Percentage Yield — i.e. that does not pay you at least 1% on your money — then you are paying “interest” in the form of inflation (pegged at 1% as of this article) and you are losing money, full stop.
To see your money grow over time, you have to beat inflation, and then add at least a few percentage points to beat any money management fees, capital gains taxes, etc. This starts us “in the money” at 2% and goes up from there (with escalating risk of course).
Here is exactly the path I followed with excess cash, which has a good mix of security and risk for me; keep in mind investment is an intensely personal thing and your risk adjustments will vary:
- Cash up to $20,000 — 2.00% APY interest-bearing checking account (FDIC insured)
- Cash $20,00 – $25,000 – peer-to-peer lending on LendingClub (net annualized returns 5.59% – 8.21%)
- Cash $25,000 – $30,000 – Vanguard REIT investment trust (8%+ return historically, doing better right now)
- Cash beyond $30,000 it gets complicated
A few ideas for the “it gets complicated” part above $30k: as we discussed in our 7 Steps Necessary to Stop Living Paycheck to Paycheck, I am convinced that real estate is generally a fairly good, safe investment. It is a real asset that will always be necessary (think: food, clothing, shelter) and is (pretty much) always going to appreciate in value since they’re not making any more of it.
Different ways to get into real estate include 1) Saving up money and buying your own properties, 2) Participating in RE deals with someone else, or 3) Getting into crowdfunding or peer-to-peer real estate platforms.
There is always the stock market exposure you can get simply by buying the index (12% return historically). If you haven’t read Flash Boys you might want to do that before you decide to trade individual stocks or hold anything other than an index fund. Even simply holding an index fund is going to expose you to a lot more volatility than it used to, as robots are making most of the trades today, and their algorithms are prone to mistakes and unintended consequences that could easily bring the whole market to its knees for no reason.
Finally, at higher levels of assets you will want to evolve a wealth protection and tax minimization strategy unique to your situation and local laws.
Some more resources and tools to look into, some of which have deals for you:
- Digit.co – automate your savings and get text updates, a great product (aff link)
- LendingClub – peer-to-peer investing (get a $25 bonus to start investing today)
- Betterment – Robo-investor with very low fees, and get 6 months free if you use this link
- FundingCircle – small business peer to peer lending
- PatchofLand – real estate peer to peer lending
- LendInvest – real estate peer to peer lending
- Fundrise – real estate peer to to peer lending
- GroundFloor – real estate peer to peer lending
Adding a free $25k+ to your bank account should not be hard. If you have a decent income and have the ability to punch a few buttons, you can automate your saving to 50% of your income. If you can also implement the healthy mindsets about wealth and value above, your income will go up year after year.
For most people, once they see how rewarding it is to save even $5,000 or $8,000, they will feel a surge of motivation to save more, save faster, and further reduce expenses or increase income.
There are just three ways to wealth: reduce outflow, increase income, or both. Some people will find reducing expenses easier but you will never save your way to being a millionaire; you can only earn your way there.
But that’s a topic for another article ;)
Also published on Medium.