Making more money is not a necessary step to achieve your goals. If you truly wish to save more, you have to know how to identify a want in disguise of a need.
Sometimes, when you save for large goals in the future, such as retirement or a down payment on a home, you may feel that you need to make more money before these things can happen. You think that once your incomes are up to a certain level, you?ll be able to afford to save.
Not true. For many folks, learning to distinguish between wants and needs is enough to get you to your savings goals.
Here?s an exercise I do with my students in the class I teach whenever I hear them say that they ?can?t afford? to save. Grabbing a marker, I ask them to tell me what monthly expenses they have and write those down on the board. For example, dining out: $100 per month; car payment: $250 per month; cable TV: $120; and smartphone: $80. Other items include clothes and shoes, getting hair and nails done and playing the lottery.
Then we look at the board and really think about whether these things are needs. This is where the fun begins. Initially, my students rationalize why they need the things they want. A big point of contention is smartphones. Many students say they need them, but in reality admit that smartphones aren?t something they can?t live without. And that?s the point to this exercise ? rationalizing. We?re very good at rationalizing what we want, making it sounds like a need when it is not.
If the students can do without the things listed on the board, they can save $550. To hit the $5,500 annual max of contribution to an individual retirement account, they only need $458.33 per month. This means without having to ask for a raise or to get a second job, they can max out an IRA and still having $92 left over to invest.
With my trusty financial calculator, and using the students? timeline for retirement, I come up with an amount that blows my students away. If they have 40 years to fund an IRA up to the limit until retirement, with a reasonable rate of return in the market of 7 percent, they can accumulate $1,174,853 in 40 years ? all without having to make more money. This was money they are already spending.
For all of us, it boils down to priorities. Once we make our future financial needs a priority, we can change our perception of what we really need versus what we want, and reallocate our money accordingly to fund our goals.