This will surprise a lot of people, but I would say one of the top reasons I’m financially free and a millionaire in my 30s – as a black woman in America without an inheritance or special perks – is simple: I’m a saver. Saving is one of the first and most important steps towards the north star of financial freedom.
I’ve always been a saver and I’ve always liked to stack my coins. The family joke is that my brother who is 10 years older than me first borrowed money from me when I was 6 and he was 16. That really happened. My own family has illustrated to me that saving doesn’t come naturally to everyone, but the fact that it came naturally to me has been a blessing and the good news for you is that it absolutely a skill that can be learned!
How to save your way to financial freedom:
Run your numbers: create a basic tally of your budget. What is your income each month? What are your FIXED (food, housing, transportation, phone) expenses that you need to live? What are your variable expenses: fun/going out, cable, clothing, etc? Subtract your monthly fixed expenses from your monthly take home income – how much extra is there? Run that same calculation with your variable or optional expenses – how much extra is there? From here, calculate the percentage you can save (ex. $1,000 income – $500 expenses = $500 extra, $500/1,000 = .5 or 50%). If that % is less than 15% of your take home pay, I’d recommend seeing what you can cut to get to at least a 15% savings rate per month. Trust me, you CAN do this and you have to do this if you want to be free. I managed to save $25,000 in two years while making $35,000/year living in Manhattan. If I can do that, you can save 15% of whatever you earn.
Automate your savings. This step is crucial. Once you figure out how much you can save, set it up with your bank so that shortly after your paycheck is deposited into your checking account, a set amount (at least 15%) goes immediately to your savings, every single check. Once you automate, the money starts to pile up quickly. Make a promise to yourself not to touch those savings unless it is an absolute emergency and if you do take something out, you have to replace what you borrowed from yourself within 3 months.
Set a goal. Your goal could be to save 6 months of living expenses for an emergency fund, a down payment for a house, or perhaps enough money to buy a car in cash. Whatever motivates you to keep saving like a squirrel.
Optimize. Find the highest interest rate account that you can OR one that generates points. In my case, I started my savings with a basic Citibank savings account because I found it easiest to do my automatic transfers and track my progress within the same banking interface. Citibank also had a good rewards program at that time that allowed my to double and triple my monthly rewards by having multiple active accounts, so I ended up making up in points (that then translated to airline tickets and rental cars on my travel adventures) what I was giving up in interest. Find the account that works for you and then stick with it.
The reason saving is so important is that it positions you to be ready for opportunities when they strike. I wasn’t planning to buy an apartment in NYC at 24, but I saw an amazing deal and just happened to have squirreled away $25k, the exact amount needed for the down payment. That apartment went on to cashflow an income after expenses of over $12k/year and then made me a profit of hundreds of thousands of dollars when I eventually sold it years later – all because I had saved like a squirrel. Saving is a habit that will set you up well for wealth generating opportunities.
Happy saving!
Freelennial 