To fix your financial situation, you may need a mixture of both saving more and earning more.
This is a big personal finance debate.
Some people believe that saving money alone doesn't work and that earning more is the only way. Others believe that saving money is better than earning more.
I believe that many people have room in their budget to cut a little more, but, yes, there is only so much that a person can realistically cut before they need to start earning more.
If you're not at that point, though, then continue reading so that you can learn more about the power of frugality and the many reasons to save money.
You need to understand personal finance.
Earning more money won't solve all of your financial problems.
If you only focus on earning more, you may never realize that you have a financial problem. This may hold you back for years because you didn't think it was worthwhile to take a moment to learn more about how your financial decisions impact you.
This can lead to lifestyle inflation, money being wasted, trying to keep up with the Joneses, and more.
By also focusing on saving money, you will be taking a great step towards understanding your financial situation and what needs to be changed. This can help you to stop wasting money!
Here are a few personal finance related things you may need to learn:
- The importance of an emergency fund.
- How to save money.
- The ins and outs of saving for retirement.
- How interest rates can impact you.
- The value of your credit score.
And much, much more!
Saving money doesn't mean that your life will suck.
“Wow, that person must lead a very boring life if they save that much money.”
“I can’t save money because that means I’ll just be eating Ramen and sitting on my couch all day long.”
There is a myth that only very sad and boring people save money. I’ve heard it over and over again.
As you can probably guess, I really dislike this myth. It’s just not true at all.
There is absolutely no reason to go broke by spending all of your money in order to have a good time. I believe that you can balance living a good life while saving money.
The power of frugality means that you can still live a great life while on a budget. Money doesn't have to dictate how much fun you have.
There are plenty of ways to live an awesome life while saving money. Yes, you can still see your friends, have fun with your loved ones, go on vacations, and more, all while staying on a realistic budget.
We spend less money than ever and travel full-time, so I know this is true!
Related article: How To Have Frugal Fun
You can see the benefits of saving money right away.
Earning more money is great, but it may take you some time in order to increase your income. Whereas with saving money, you may see the results from your saving actions right away.
If you want to start saving money right away, it can be as easy as a phone call or email.
This means that by making a simple phone call to your cable company (or some other company), you may be able to save money quickly, which can lead to less stress and more money in your pocket.
There's no reason to just waste money.
There is no reason to spend all of your money just because you are able to. It doesn’t make any sense to spend everything just because it’s there. In my opinion, finding ways to save money is always a great idea.
Even if you are only able to save a small amount, that is much better than not saving anything.
Time and compound interest are both on your side, and this can turn the small amount of money you have saved into a much larger amount.
The less money you spend, the less you need.
By spending less money, you'll decrease the amount of money you need in the future. This includes money for emergency funds, retirement, and more.
This will help you to build your emergency fund quicker and reach retirement sooner.
Just think about it: If you are already living a frugal lifestyle, then you will be used to living on less in the future. This means that your retirement savings doesn’t need to be as large, which means it may be easier to reach that savings goal.
Also, if you spend less money, you probably won’t need as much in your emergency fund, which can also help you fund that sooner!
According to the U.S. Bureau of Economic Analysis, the personal savings rate in the United States has averaged around 5% in the past year, and averaged 8.33% from 1959 until 2016.
Mr. Money Mustache has a great graphic in his blog post The Shockingly Simple Math Behind Early Retirement that shows you how your savings rate can dramatically impact when you'll retire. For example:
- With just a 5% savings rate as mentioned above, it would take you 66 working years until you reached retirement.
- A 25% savings rate would mean that it would take you 32 working years to retire.
- A 50% savings rate would mean that it would take you 17 working years to retire.
- A 75% savings rate would mean that it would take you 7 working years to retire.
So, by saving more of your money, you are likely to retire sooner. Sounds amazing, right?
There's no guarantee that you'll always have that income stream.
Yes, there are tons of jobs and your income potential is pretty much unlimited. However, you never know how long you'll be making money or how long that job will last.
You might be thinking, “But I enjoy my job!”
While it’s great that you enjoy your job, you should still be saving money. I have heard far too many people say that they love their job and don’t need to save money because they can just work forever and still be happy.
However, what happens when you can no longer work? You don’t know what the future will bring – you may encounter a medical problem, a serious life event, you may hate your job 20 years from now, and so on.
Nothing is guaranteed.
So, instead of spending every last penny that you have, you should find ways to save more money.
You can use your time for other things.
The last of the many great reasons to save money that I want to talk about today is that by finding ways to save money, you may be able to work less.
This may allow you to have more time for other things in life that you want.
Everyone wants more time, right?
Do you believe that saving more money is important as well? What other reasons to save money can you think of?
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