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As I was going through college, I had my mind set on getting rich. I envisioned a good job that paid a ton of dough. After all, the more money you make, the richer you are, right? Fresh out of college though, I wasn’t building savings, I was chasing the money to have and to spend in the present day.
And I did alright. While I was still in school, I was working at Walmart. I started out with it being a quick part-time job to working my way up to an assistant store manager. It paid pretty good for a college kid – in fact, it paid pretty good for a career in general. I was ahead of most of the kids my age, which for some reason, I always tended to think is important … I know, horrible, right?
Regardless, that job took up a lot of time. I was working at least a good 50 hours a week while going to school part-time. And then one day, I actually did the math. Although I was making good money, at the end of the day, my hourly wage was horrendous. It also had nothing to do with my major – Computer Information Systems.
So I left and got a job in IT as a Systems Engineer. I started out part-time while I finished school and then went to full-time. After a number of years, I was promoted to the engineers’ manager, which is where I am today. I make a pretty decent salary right now, but for years, I missed the point. I was aiming for more income and not focused enough on savings.
Wealth isn’t about how much money you make – wealth is about how much money you save.
Think about it, what good is making a lot of money if you aren’t keeping any of it? Sure, you can live it up in the present day, but once you’re done working, whether it’s because you want to or because you’re forced to, you’re going to be broke as a joke.
One of the blogs I like to follow is that of Jim Collins. He’s been financially independent since 1989 so he’s definitely worth listening to. He’s also been a guest on a number of podcasts. The other day, I was listening to him on one of Paula’s Afford Anything podcasts. One of the things he was talking about was your savings rate and I think he put it in the most straightforward way:
It’s not how much you make, it’s how much you keep.
In other words, your savings rate is more important than how much income you make. We all know people who like to flash their giant house or expensive sports car or their $1,000 suits. And some of these people may actually have the wealth to back it up. But more often than not, those that are showing off their expensive goods, make good money but spend all – and sometimes more – money than they make. Be sure to read The Millionaire Next Door if you’re not sure you believe that.
Don’t think that I’m saying that high incomes are bad – in fact it’s just the opposite. I would highly encourage each and every one of you to build yourself up to as high of an income as you can. And the earlier you can do it the better.
You don’t need to waste your money on keeping up with the Joneses. Save your money to put yourself on the path to financial freedom.
The idea is pretty simple, the more you save, the faster you can clear your way to financial independence. If you’re building up your savings by a large percent – let’s say 50% of your income – you’re actually paving your way to freedom in two ways.
- You’re obviously building a foundation for yourself. The more you save, the bigger your nest egg is. And the sooner you start saving, the longer you have for compounding to work its magic.
- The biggest financial irony of all occurs. The more you are saving out of every paycheck, the less you are living off of. Think about that one for a second. If you’re making $50,000 and saving 50% of your savings, that actually means you’re only living off of $25,000. So when you’re trying to figure out how much money you need to retire, you’re total income becomes less relevant. The more money you save, the less money you’re living off of, which means less money you need. Pretty cool, right?
Now, 50% of your income is just an example of savings. Some might be able to do less and some more. The key is to do as much as you can and to increase it whenever possible. Right now, we save about 35% of what we make. With my wife working part-time at a non-profit (those rarely pay much!) and us raising a child, I don’t think that’s too bad. However, I’m working to push that number up higher by cutting unnecessary expenses left and right.
I have two big financial pushes that I want to ingrain in my 6-year old daughter as she gets older:
- Save at least 50% of your income and one day you will never have to worry about money.
- Build up passive income as early as possible. Don’t work for money – have your money work for you.
These are the same messages I would encourage anyone aiming to reach financial freedom to follow.
High income jobs don’t make you rich – your savings rate is what makes you rich. How is your savings rate?
Thanks for reading!!