Step 80: Your Savings Rate

Step 80 of the 100 steps mission to financial independence: Your Savings Rate
Step 80: Your Savings Rate

Now that you’ve got a bigger picture of your long-term financial goals, it is equally important to identify ways to achieve those goals. Hopefully by now you’ve set yourself some big financial goals to work towards to in the near future. These could range from earning some extra cash, becoming debt-free and paying off your mortgage, to reducing your work hours or retiring early.

Why exactly do so many people still have debt or no financial or pension plan for their future? Ask anybody in your environment and a vast majority will say that they just don’t have enough money to pay off their debt or to throw at their pension fund. They’ll tell you that they might plan to pay off their debt as soon as they get that promotion and accompanying pay raise. But by now you probably know that even when they get that increase in income, they still most likely won’t be using that money to pay off their debt, nor will they tuck it away and use it to invest in their pension. They’ll simply spend it on new things and without them even realizing it, their lifestyle will gradually inflate to a new level.

And are you maybe still telling yourself a version of this story as well?

Let’s think about how you can speed up your savings goals. Simply speaking and as we have already discussed in earlier steps, there are generally two ways to increase your savings:

  • increasing your income
  • decreasing your expenses

The disadvantages of looking at achieving your savings goals in this way however is that it is easy to focus on the finding excuses for not saving more: “I don’t make enough money”, “If only I earned another $1000 a month”, “It’s so much easier for my neighbor, he earns a lot more than me”, or: “I wish I didn’t have a mortgage for 30 years, it’s a big expense each month”, “It’s easy for you to say, I came out of university with a $50,000 debt”, “I have two young children, do you know how expensive they are?”…. And the list goes on and on and on. Continue reading

Step 77: Make a Year Budget

Step 77 of the 100 steps mission to financial independence: Make a Year Budget
Step 77 of the 100: Make a Year Budget

We’ve looked in detail at making a monthly budget where you carefully plan your expenses per category per month to ensure that you achieve your goals, both short-term as well as long-term, especially when it comes to savings, pension and investment goals. Without a budget it is easy to overspend and to lose the overview of where your money goes each month.

In addition to making a monthly budget it is wise to also draw up a yearly budget in which you make a yearlong plan for your expenses. We’ve already touched upon this a little when we discussed making a monthly budget, when we looked at the importance of bearing in mind certain yearly expenses that don’t come up every month but might come up just a few times or even just once a year.

A yearly budget doesn’t only ensure that you remember to budget for these expenses though. The added advantage of a yearly budget is that you can make a better and more accurate plan for your expenses by bridging the gap between your long-term financial goals with your day-to-day spending patterns. Of course, having a monthly budget already gives you the opportunity to plan expenses far better than if you just spend without being fully aware of your monthly total spending pattern. But it won’t give you as much insight into whether you are on your way to achieving your long-term financial goals or whether you are still quite a long way off. By making a budget for a full year you get a far better overview of this. Continue reading