What’s up guys. I’m super excited to announce the first guest post on the blog. For the inaugural post, I have the honor of Jon Dulin at Compounding Pennies talking to you about 5 easy ways to save and grow your investment account.
Take it away Jon!
Do you know how to grow your money? You probably think that getting the highest return possible on your money is the way to go. But the reality is growing your money has more to do with how much you are saving than how much you are earning.
The reason for this is simple. When you invest a small amount of money, it can only compound on itself so much. But if you were to invest more money over and over again, each of these savings events would compound upon themselves, leading to greater growth.
Here is how this looks in real life. Let’s say you invest $5,000 and earn 8% annually for 20 years. After these 20 years, your money has grown in value to a little more than $23,000.
But if you invested $5,000 and then added $100 a month every month for 20 years and it also earned 8% annually, you would end up with over $82,000!
In the first example, your money earned close to $18,000 in interest. In the second example, you earned roughly $53,000 in interest.
And even if you only earned 4% on your money in the second example, you would still end up with over $48,000 and have earned $19,000 in interest.
The bottom line is that how much you can save and invest has a dramatic impact on your wealth down the line.
So the question becomes, how do you go about saving the most money possible?
Here are the strategies I use that allow me to put an extra $3,500 into my investment account each year. And thanks to these extra investments, I have seen a tremendous impact on my bottom line.
5 Tricks To Save More Money
#1. Know Your Values
The first strategy is to get to know yourself and what you value. Too many times in life we ignore this simple rule. The result is us buying things because we think these things will make us feel better.
In the short term, they very well may. But over the long term, the only thing they do is rob us of our money.
By getting to know what you value, you can stop wasted spending and have the ability to save money. And depending on how much wasted spending you do, you could potentially save a lot of money.
Here is how this looked for me. When I was younger, I saw name brand clothing as a status symbol. I only shopped at stores where a dress shirt cost me $100 on sale. For a while, buying these clothes made me feel good.
Then one day at work, I saw a co-worker who always dressed nice. I was curious where he bought his clothes and so I asked him. When he told me the name of a discount retailer, my jaw hit the floor.
This was my wake up call.
I realized that I was the only one who knew I was wearing name brand clothes. And I could easily look good in less costly clothes.
From that day forward, I understood that I valued nice fitting clothes that were made with quality. I didn’t value the name on the tag.
Doing this has slashed my clothing spending by 80% and has allowed me to save a lot of money.
Your goal is to look at what you value in life and see how your spending matches up. Chances are you are going to find a lot of ways you waste money that you can start saving.
#2. Question Your Spending
The next strategy I use is my personal favorite. Before I buy anything, I stop and question the purchase. I ask myself how spending my money on this item is going to benefit me.
Then I ask if I really need it now and if so if there are any alternatives that I can get for a better price.
Here is how this looks in real life. The other day I was at an electronics store to buy a new screen protector for my phone.
As I was wandering around the store, I found myself in the DVD section. There I saw a movie that looked interesting. The cost of the DVD was $15.
My old self would have bought it without batting an eye. I wanted it and I had the money, so I would have bought it.
But instead of doing this, I questioned my spending. I asked if I really needed it. The answer was no. I would get by fine without watching this movie.
Even so, I really was interested in seeing it. So I asked myself if there was another alternative to buying the movie.
The answer was yes. I could rent it for $2 and this is what I ended up doing. The result is that I saved myself $13 by simply questioning my spending.
If you can take the 5 minutes to think through your purchases, you will find that you start buying a lot less stuff and are still able to enjoy life.
#3. Use Credit Cards
The first two tips were more about learning how to spend on things that matter to you. This tip is about how to save the most money when you are already spending money. It is called credit card arbitrage.
But you can’t do this with just any credit card. You need to start using cash back credit cards. When you shop using these credit cards, you earn a percent of your spending back that you can use as a statement credit.
For example, if you spend $1,000 and earn 1% cash back, you have $10 that you can use against your balance. When your bill comes due, you apply the $10 credit and pay $990 and your balance is paid in full.
Doing this saved you $10.
The key to using cash back credit cards is to find ones that offer the most cash back and fit your spending habits. I use two cards. My American Express card offers me 6% cash back on groceries and 3% on gas purchases. My Citi card offers me 2% cash back on everything else.
At the end of the year, I average between $1,000 and $1,500 in cash back that I apply to my balance and save the difference.
It’s easy to do and as long as you are disciplined about your spending, you need not worry about getting into debt.
#4. Cut Big Expenses
The next way I save extra money to invest is to pay attention to my big expenses. Why do I stick to large expenses?
The simple reason is because most times I do a little bit of work and save a lot of money. With smaller ways to save, you have to work to save over and over again.
For example, cutting out your daily coffee habit will save you $4 each time you skip it. But you have to make a conscious effort every day to save that $4.
On the other hand, you can take 30 minutes to compare insurance premiums and save $150 a year or more. I make it a point to shop around every other year and usually can save some money.
In addition to insurance, I look at cable, the various taxes I pay (like property taxes), and if there are ways I can save money on my mortgage by refinancing.
Granted I am not refinancing over and over, but one refinance can save me hundreds of dollars a month. The same idea applies with my property taxes.
When I appealed my assessment, I was able to reduce my taxes by over $1,000 a year.
The point is, I work for a set amount of time once a year and save a decent amount of money every month going forward.
#5. Save Your Savings
The next strategy I use to save more money is all about discipline. One day after grocery shopping I noticed the receipt listed how much money I saved on that trip.
Usually, I would have let it be, but something made me think more about this money. I decided that simply having this number on my receipt did me no good.
Sure it was great to save that money on groceries, but if I wasn’t doing anything with that money, meaning putting it into a savings account, was I really saving it?
Odds are I would eventually spend it. So I made a point to start saving my savings. Whenever I shopped and saved money, I would go home and make a transfer from my checking account for the amount of money I saved.
At first this was hard, simply because I lacked discipline. But as the weeks turned to months, it became a habit and now I do it without thinking.
And the results are staggering. On average, I save $15 per shopping trip by shopping sales and meal planning. This comes to $60 a month.
Add in the other money I save by shopping sales and I easily put an extra $100 a month into savings that I can then invest.
Like I said, starting this trick is hard only because you are not disciplined. But if you can push through and make it a habit, you are going to see great results.
How The Savings Add Up
The final step in this process is being disciplined. You need to actually save the money you are saving. If you just leave the money you saved in your checking account, odds are you are going to spend it.
So you need to make it a point to start investing the money right away or move the money into a dedicated savings account where you will invest the money at set times throughout the year.
For me, using the tips above allows me to add an additional $3,500 to my investment accounts annually in an average year.
At 8% annual return over 20 years, this ends up being close to an extra $175,000 I have in savings. That is a few years’ worth of living expenses! This is in addition to the money I budget to invest.
And I have this “extra” $175,000 by doing simple things that anyone can do. It doesn’t take a lot of work. It all comes down to being smart and disciplined with your spending.
At the end of the day, what grows your wealth the most when it comes to investing is how much money you can save, not how much of a return you earn.
Make it a point to focus more of your attention on saving the most money possible. The tips I use are a good start and you can always find other ways to help you save even more money.
Author Bio: Jon Dulin writes at Compounding Pennies, a personal fiancé whose goal is to help people be better with their money, one day at a time.
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