You want to save as much as you can without that miserable penny-pinching feeling. Said differently, you want to save as much as you can while still "living rich".
For most people, "living rich" means spending more than they make. Studies show that the more people make, the more they spend.
All those mortgages, credit cards, car loans, and other debts really add up fast. In fact, according to USA Today, the average American household had personal debt in the range of $84,454 in 2003.
Smart savers (i.e., wealth builders) understand that they don't have to spend a whole lot to live well. They know that the best things in life really are free - requiring nothing more than an investment of time and love. And the next best things - the material things that make life good - can be purchased wisely and enjoyed forever.
Smart savers know that you don't have to crank up the spending as your income increases. On the contrary, the percentage of their income that is saved increases as their income increases.
Many financial planners recommend a savings rate of 10 percent of your net (after-tax) income. My recommendation is 15 percent of your gross (pre-tax) income. That's an aggressive saving plan - but if you incorporate my ideas for living rich into your budgeting, it can be done.
The average college graduate makes $35,000 these days. Fifteen percent of that is $5,250. At the other end of the age spectrum, the average baby boomer makes $57,700. Fifteen percent of that is $8,655. Either way, that's a lot of money to sock away every year.
If you have your own business (either a full-time business or something that you do on weekends) and invest in real estate, you will be able to realize significant tax savings, even at the $35,000 income level. As a ballpark figure, I believe you should be able to reduce your taxes - state, local, and federal - to no more than $5,000 a year. That would leave you with $30,000 to live on.
Smart savers with that kind of modest income would leverage up their lifestyles by sharing living quarters with one or more people. Having your own room in a three-or four-bedroom house is generally cheaper than having a one-bedroom house or apartment of you own. A $10,000 allocation toward the rent/mortgage and utilities would leave you about $15,000 a year (or $1,250 a month) to spend on food, clothing, and fun. By shopping wisely (vintage stores instead of The Gap; natural foods instead of manufactured crap; homemade meals instead of restaurant dates), you could live very well - even richly - on $1,250 a month.
In future blogs, I will suggest many ways to boost your income to $150,000 in three years or less. Also, I will provide specific examples of people who have done that...and better.
With an income of $150,000 a year, you can expect to be paying about 25 percent of that - or $37,500 - in taxes. The rest ($112,500) would be available for housing, "living rich," and savings.
Assuming you paid $36,000 for housing and associated costs, and then tripled your living-rich expenses to $30,000 a year ($2,500 a month), you'd have $46,000 for savings. That represents a savings rate of 40 percent. Split your housing costs with a roommate, and you'll be able to save 55 percent of your income!
Saving half of your gross income may seem insane, but it's entirely possible. And it can be done without pinching pennies. I have never denied myself anything I wanted. I have, however, learned how to make thoughtful buying decisions. By investing in products and services that truly add value to my life, that enrich my life in meaningful ways, I have started saving at least 50 percent of my gross income.
If you would like to maximize your wealth-building progress (i.e., accelerate the pace at which you acquire wealth), I recommend that you set for yourself the following rate-of-income savings targets:
- If you are making less than $30,000 a year: 15%
- More than $30,000 but less than $50,000: 20%
- More than $50,000 but less than $150,000: 25%
- More than $150,000 but less than $300,000: 30%
- More than $300,000 but less than $500,000: 35%
- How long you invest
- How much you invest
- What rate of return you get on your investments
As you follow this blog, I'll teach you how to do it. I'll tell you exactly how to approach different types of investments...from real estate to stocks to your very own business.
I'll teach you about valuable income-accelerating techniques that will make it possible for you to invest a bigger chunk every year.
For now, just get some numbers in your head.
If you have a lot of money to invest right now, think in terms of 20 percent, 15 percent, or even 10 percent returns. (This means you'll be able to do most of your investing in the stock market.)
If you don't have a lot to invest, your ROI numbers will need to be higher. To get 25 percent to 35 percent, you can expect to be investing in a mixture of real estate and stocks. To get 40 percent, 45 percent, or 50 percent, you'll need to invest in real estate, stocks and small businesses. And if your situation requires you to be generating extremely high returns - 50 percent or more - to reach your wealth goal...the only way you'll be able to do it is by starting your own business.
The people I have studied have all invested in real estate or stocks. But they have all made huge amounts of money through the various businesses they've started or helped run.
With a combination of stocks, real estate, and business savvy, you can follow in their footsteps.
And just think. You are now on your way to achieving a seven-figure net worth within the next seven years!$
[Ed. Note: If you're not happy with your financial situation, you're in the perfect position to change it for the better – right now. Ray has just released a special video that covers an online business system that you can use to start growing your wealth. To watch this short video, click the following link: http://www.raybuckner.com]
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