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Why $1 is more than $1

There is no doubt most of us have heard terms such as compound interest, inflation, rate of return, etc.  These are very common financial terms and often used when looking at retirement, investments, or other wealth building accounts.

The problem with most explanations is that they don’t break out down to something that makes sense and that is relevant to each of us.  So without going into all the mechanics we break it down into some very simple concepts in the infographic for you.

Tip #1: Knowing Enables You

When you know the future value of the money you earn it will help you prioritize how you spend that money.  Sure, it may not be exciting to save $1 for 30 years to make $5, but apply that concept on small things each day.  $3 for a cup of coffee, $2 for a soda, $10 for lunch, $20 for dinner……before you know it you can see where your daily spending is preventing you from reaching a full retirement or that house you are saving for.    

Tip #2: Consistency is Best

Making goals to save a certain amount of money for house, school, or retirement is great.  Where the problem lies is once you make that commitment and set up a large yearly or monthly contribution you stop and cap your goals.  Truly changing your financial outcome will take one more change.  Finding ways to increase your savings to your goals $1 at a time.  It may be a cup of coffee you give up, using a coupon, or any other way.  Set a saving per day goal and work hard to achieve that from the disposable income you have.  Remember if you can find $30 a day, that will add up to over $1M in 30 years.  Adjust that goal as you see fit, but always remember what you spend today has an impact on what you spend tomorrow.

Tip #3: Start Small and Grow

Learning to save and apply that savings by day takes practice.  Start small and see how you do.  For example, try to save $1 a day.  This should be easy in most people’s daily routines.  Use a coupon, turn off some lights, eat left overs, etc.   Once you master that, keep looking for additional ways to save.  Check out our blog and savings ideas for more ways to save.

Tip #4: Goal Setting Visualization

Nothing helps to set a goal by a picture.  Finding a your own unique picture that represents the goal or goals you want to achieve gives you a visual reminder of what you are working for.  Find that piscture, make it real, and remind yourself of the things that are important.

Tip #5: Goals Must Be Personal

Sure, buy a house is a good goal. However, buy a house on so and so street because that is where my best friend lived and it is where I want my kids to grow up is much better.  When finding that goal, determine why it is so important to you and the things that make it personal.  Wrap it up with a picture from tip #4 and you will have something that you drives you.

Making It Work

How you become Thrifty Rich depends on how you take the tips above and put them into a system that works for your.  To have the most success begin small and follow your results, if it is working you can add to it.  Getting to Thrifty Rich is about making a smart choice on every dollar you spend.

Tip #7: Setting Up a System

There are three key things you must do to start your journey:

1. Establish goals and determine the daily savings required
Pay off debt, buy a car, save for house, etc.  Remember to create goals based on tips 4 and 5 above.  Once you have them, you will know how much money you need and by when.  You can then calculate the daily amount of money you need to save to reach them.  Simply divide your amount by the days left to achieve the goal.  Do that for each goal and add the overlapping time periods.  Now you know what you need to do.

2. Find ways to save

Now that you have your daily savings required to reach your goals, it is time to start to find ways to reach that number.  The perfect case is if you required daily savings is below your average daily spending.  In this case you should be able to reach you goals by simply finding creative ways to save.  If it is the other case, then you will have to either find more income or pay off current debts.  Either way, you will know how much each thing you spend on impacts the goals you desire.

3. Move the savings via cash, another account, or to some other bank

Unless you have a very strict budget that you follow, the best way to be successful is to move the money you save into another place that you don’t have direct access to.  If you leave the money in say a checking account, it becomes to easy to use it for something not related to the goals you have set.  Doing this also lets you see how your money is growing.  Ideally, you would want to move the savings into some growth type of account (mutual fund, savings account, etc.)