Continuing our previous post about the Essential Principles for Achieving Financial Freedom, saving is one of the most crucial steps in achieving financial freedom. Whether you're just starting your financial journey or looking to revamp your savings strategy, there are a few essential principles to keep in mind. This post will explore some saving techniques, the 50/30/20 and 70/20/10 rules, the "pay yourself first" principle, and some books, investors, and financial authors who support these strategies.
Saving Techniques:
Create a budget: Creating a budget is the first step to taking control of your finances. You can set a target savings rate by analyzing your income and expenses to help you achieve your financial goals. You kind find more details on how to develop a budget and how to stick to it here.
Automate your savings: Automating your savings is a simple but powerful technique to help you save more. Set up a direct deposit from your paycheck to your savings account to ensure that a portion of your income goes to savings each month.
Use cash-back apps: Cash-back apps can help you save money on purchases you're already making. Using these apps, you can earn cash back on your purchases and put that money toward your savings.
Cook at home: Eating out can be expensive. By cooking at home, you can save money on food expenses and put those savings toward your financial goals.
Cut back on subscriptions: Monthly subscriptions can add up quickly. Consider canceling subscriptions you no longer use or need to save monthly money.
The 50/30/20 Rule:
The 50/30/20 Rule is a popular savings strategy that divides your after-tax income into needs, wants, and savings.
50% of your income should go towards needs, such as housing, utilities, and food.
30% of your income should go towards wants, such as entertainment, shopping, and dining out.
20% of your income should go towards savings, such as emergency funds and retirement accounts.
The 70/20/10 Rule:
The 70/20/10 Rule is a more aggressive savings strategy that divides your after-tax income into three categories: living expenses, financial priorities, and future goals.
70% of your income should go towards living expenses like housing, utilities, and food.
20% of your income should go towards financial priorities, such as debt repayment, emergency funds, and retirement accounts.
10% of your income should go towards future goals, such as saving for a down payment on a house, a child's education, or a dream vacation.
The "Pay Yourself First" Principle:
The "pay yourself first" principle is a simple but powerful technique that can help you prioritize saving. The idea is to treat saving as a bill that must be paid before anything else. You're putting your future financial security first by automatically transferring a portion of your income to a savings account before paying bills or spending on discretionary expenses.
Books and Authors on Saving
Many books and financial experts support the principle of paying yourself first and prioritizing saving. One of the most famous is the book "The Richest Man in Babylon" by George S. Clason. This book is a collection of parables set in ancient Babylon and teaches timeless lessons about managing money and achieving financial freedom. Here are a few examples of other famous authors and financial experts who support saving and the principle of "pay yourself first":
David Bach: David Bach is a financial author and speaker who has written several best-selling books, including "The Automatic Millionaire." In this book, he advocates for the "pay yourself first" principle, which he calls the "latte factor." You can build wealth over time by cutting back on small daily expenses, like buying a latte, and instead putting that money into savings.
Robert Kiyosaki: Robert Kiyosaki is an entrepreneur, author, and speaker best known for his book "Rich Dad, Poor Dad." In this book, he stresses the importance of paying yourself first and investing in assets that generate passive income, like real estate or stocks.
Suze Orman: Suze Orman is a financial expert and author who has written several books on personal finance, including "The 9 Steps to Financial Freedom." In this book, she emphasizes the importance of paying yourself first and setting aside money for emergencies and long-term savings.
Ramit Sethi: Ramit Sethi is a personal finance expert and author of the book "I Will Teach You to Be Rich." He encourages readers to automate their finances and pay themselves first in this book. He also advocates for the 50/30/20 Rule, which allocates 50% of your income to necessities, 30% to discretionary spending, and 20% to savings and debt repayment.
These are a few examples of financial experts who support paying yourself first. By making saving a priority and setting aside money before you pay bills or spend on discretionary items, you can build a solid financial foundation and work towards achieving financial freedom.
Conclusion
Saving is an essential step on the path to financial freedom. By following principles like the 50/30/20 Rule, the 70/20/10 Rule, and paying yourself first, you can ensure that you are consistently working towards your financial goals. By using techniques like automating your savings and using cash envelopes, you can make saving a habit and ensure that you stick to your budget. And by reading books and learning from financial experts, you can gain valuable insights and inspiration to help you on your journey to financial freedom. Remember, every little bit you save brings you closer to your goal, so start saving today.
Sincerely,
Aladdin Abdulkareem
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