Intro to saving: establishing the mindset
Get in control of your relationship and mentality towards money
Background
The unemployment rate during Covid-19 peaked at ~16%. This is the single highest rate we’ve seen since WW2. Even before all of this, most Americans lived paycheck to paycheck. Hit with a sudden downturn, most folks lack a safety net.
In order to have more money, you either need to earn more or save more. Today we start on the saving side.
Change your mentality
The world is awesome for 20/30-somethings. We likely don't have dependents. We’re tech savvy and companies love that. We're decades away from retirement.
Businesses also know that the world is awesome for us. That we have the most 'freed' up dollars. It makes sense that they love targeting us with trendy restaurants, clothes, and events.
What’s made me think twice before spending nowadays is looking at money this way:
How many more hours do I have to work to afford this item?
If I don’t spend $5 on that boba today, and invest it instead, what’s it worth in the future? (The rule of 72: assuming 8%/ year average return in the S&P 500, $5 will double to $10 in 9 years.)
How long can I keep each dollar earned?
How many more dollars can each one dollar make for me?
To start, here one of the many guidelines that finance gurus go by:
The 50/30/20 rule:
Explained by fangfinance:
“Popularized by Elizabeth Warren’s book All Your Worth, the 50/30/20 rule is a common benchmark to use, but adjust accordingly as you need. In this moment, we’d recommend honestly saving as much as possible where you can because it gives you insurance in this day and age. If unexpected circumstances happen (which in 2020, it has), you’ll sleep okay because you have cash on hand.”
From our friend Emily at fangfinance.
50% goes to your essential needs
30% goes to your wants
20% goes to your high yield savings account
Getting into the habit of asking these questions will help you use better judgement when buying things.
"And then, from there, the calculation was simple. To me, it just meant that every purchase I made had to buy me more happiness than saving it and investing in my freedom." -- https://www.madfientist.com/
