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6 subtle secrets of the financially successful
Have you ever noticed that some people seem to just have a knack for saving money? Whether they have a high annual income or a more modest take-home, they have no problem paying all of their expenses while still socking some away for a rainy day. From the outside looking in, it can seem like inscrutable alchemy, especially if you're a financial novice. However, there's no real magic at play - by committing to a few good habits, you can do the same thing. Here are six secrets you can use to join the ranks of savvy savers:
1. Budget aggressively
Before you can start saving your money, you have to understand it. That means knowing how much is coming in, when it arrives and where it ultimately goes. A more general budget is adequate for a financial neophyte, but if you want to become an elite saver, you'll need to break things down as much as possible. Instead of simply dividing your expenses up into "rent/food/loans/entertainment," go one step deeper and think about what actually goes into each of those categories.
You could wind up learning some surprising things about yourself. Maybe you're spending 35 percent of your discretionary funds on meals out, when it would be easier to cook and put that money into savings. Or, you're paying more than you should in loans, because you're focusing on the lower interest ones rather than the highest interest ones. The more granular knowledge you have, the easier it is to make adjustments, which can start to add up.
2. Start early
The earlier you start saving money, the better. From your first paycheck, you should be putting a little bit away. Not only does this allow you to take advantage of the wonder that is compound interest, it also gets you in the routine of putting funds away and makes it easier to retain those habits later.
What if you've been getting paychecks for a while and have yet to start doing this? The good news is that while the best time to start saving is "right from the beginning," the second best time is "today." You can do things to set yourself up for the future, right now, and put yourself in position to succeed down the road. Even marathons have a first step.
3. Automate as much as possible
One of the steps you can take today is to set up an automatic transfer to a savings account. It makes safeguarding your extra money easier, because you never see it and thus aren't tempted to spend it. Also, it prevents you from ever forgetting to save, turning building wealth into a process that you can do completely passively. After a few paychecks, you won't even miss the money - out of sight, out of mind.
4. Keep your lifestyle stable
When you get a raise or come into a sudden windfall, it can be a little bit tempting to start spending a lot more. After all, if you have it, why not use it?
Resist this impulse. Unless you've been seriously cutting back on some near-essentials, the best thing to do when you get a salary bump is...nothing. Keep your lifestyle largely the same, and you can save a good amount of money without doing anything differently. If possible, start putting more into your employee retirement fund - many employers match up to a certain amount, making this move basically free money for you.
The same is true once you've started paying off major debts. Instead of taking the cash you used to pay on your student loans and using it for dinners and fancy clothes, put it directly into an investment account. You were used to not spending it anyway, so it won't be hardship, and if you ever do fall on difficult times, you'll have a ready-made cushion.
5. Diversify widely
Save in multiple ways. Don't just put all of your money into a savings account - you'll also want to look at a retirement plan or investing in the stock market.
"The old adage about the eggs and one basket is true," Andrew Meadows, the consumer and brand ambassador for Ubiquity Retirement + Savings told US News. "Should something happen to that one method of saving, you'd be left with nothing. The same can be said for what you invest in. Many folks found in 2009 that their home was no longer an investment [they could] bet on for wealth or stability. Making sure you're taking advantage of several ways to save will mean less stress about your preparation for the future."
6. Give yourself a break sometimes
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Don't push yourself too hard to save every penny - it's important to have fun every now and again. Start with a savings plan that you'll be able to handle without tearing your hair out, and work your way up from there.