You maybe born rich or poor but you ultimately determine your wealth. Wealth is a state of mind and your mind determines your pockets. Many people are nonchalant about savings but fail to realize why they struggle. The lack of savings plays a major role and those habits are taught. Poor money habits can be broken and where there’s will, there’s way. Here are some tips on how to build wealth through savings.
Where are your savings going?
Most people save by placing their leftover funds into a traditional bank. The bank uses the money for lending and capital accumulation. You may ask why should I care? You should care because the bank gives you a minuet portion of what they earn from interest by lending your money to others. Banks use the rule of 72. The rule of 72 is a calculation of how long it takes your money to double. For example, the bank will give you 3% for a one time deposit of 10k and it would take about 24 years for your investment to double. The bank invests (either by giving out loans or stocks) your money at a 12% interest rate and that 10k become 20k in 6 years. To solve your savings issue, you can invest in a mutual fund. A mutual fund is a collection of assets (stocks, bonds and cash) that is managed. People contribute to a fund and get a higher rate of return. Instead of 3% you may receive 6-9% on average. Your money is also protected against inflation where as if you keep your money in the bank you risk a loss due to inflation. You can usually get a better ROI (return on investment) and inflation protection with a mutual fund than having you money sit in a bank or under a mattress. Keep in mind that you can have a loss of capital by investing but the risk outweighs the benefit of keeping your money in the bank.
Have benchmarks for short-term, mid and long-term savings goals
Ask yourself “what is the least amount of money that I want in my short, mid and long-term savings?” For example you can decide to have $2k short-term, 10k mid-term and your 401k, 403b, plus 1 million long-term. Once you’ve set those clear goals, saving money will be easier for you. If you do not set benchmarks you are likely to fail moving your wealth dreams to reality. You need to define where you want to go.
Find an investment bank money and set up an account. Time out of life (TOOL): 1 1/2 hour.