How To Become Rich by Saving Money

The Power of Saving Money

Are you wondering how to become rich by saving money?

You may even be wondering if it’s possible. In this post, I’ll share some ways you can become wealthy by saving and investing. 

Written By Tiffany Woodfield, Financial Coach, TEP®, CRPC®, CIM®

How I Became Good at Saving and Investing Money

Growing up, I was interested in numbers and money as well as understanding why some people created financial success while others didn’t. 

I also found it fascinating how what we believe to be true creates our reality.  

I used to hold the belief that money was bad.  It wasn’t until years later that I understood money isn’t bad; how a person chooses to use money can be bad.  

So the person and not the money may be “bad.” 

Once I let go of this belief that “money is bad,” I was able to learn how to achieve financial success. It was like a door opened, and I wanted to know more! Before this, I wouldn’t even consider talking about money, let alone investing. 

I thought the stock market was some “black hole” where money disappears. Later, I understood that a stock is like buying a piece of a company and it is sold on the market.  I found it fascinating, and I wanted to learn everything, even leading me to pursue a career in finance successfully. 

But to get good at saving and investing, I had to face my fear of money and embrace the tools that create success. 

I could be “good” and have money. 

Overcoming my money blocks opened the door to knowledge, growth, and understanding. 

I’m not saying you need to have a career in finance to become rich, but you need to feel comfortable looking at your financial situation and making decisions that move you toward financial freedom. 

Is it really possible to become rich just by saving money?

Yes, absolutely!  

Here’s the basic formula for becoming rich by saving money: 

Earning More + Spending Less =  More Savings.  

You can have an exponential savings rate when you increase earnings and savings. But if you do just one part of the equation (such as spending less), you can increase your savings and become rich.  

You control the outcome based on what you put in.  

What are the best ways to save money effectively?

The best ways to save money effectively are:

1 – Set a financial goal for yourself.

Focus this goal on how much you want to save and what you are saving for. Make sure to include your “why,” which gives meaning to what you are doing.

2 – Create an action plan for saving more.

Can you earn more or spend less? I recommend choosing one of these goals to start focusing on.

To spend less, create a budget that looks at your monthly cash flow. How much money do you bring in, and what goes to needs and wants? Analyze areas in which you can reduce your spending without feeling too restrictive. Cutting out things you don’t really need or value is easier. 

To earn more, look at opportunities to make more money, such as working a second job, asking for a promotion, or increasing your education.

3 – Make saving simple through automation and routines.

Now that you have determined how to increase your savings, you will want to find ways to make saving simple.

Consider automating the money that goes into a savings account, checking in with your spending each month, setting a plan for paying off debt and creating a routine to remind yourself of your savings goal. 

4 – Explore investing.

Once you have savings, explore ways to earn passive money, such as a high-interest savings account and other investment tools. 

5 – Watch out for a negative money mindset.

Be aware of  your negative beliefs around money, such as “ I will never have enough money.” It is easier not to look at your finances and to “blame” your circumstances for where you are.  

Where should I keep my savings to maximize growth?

Different stocks and investments have various risk profiles. 

Educate yourself or work with a professional, and while growth is a good goal, you also want stability.  

To maximize your growth, you can invest in the stock market, ETFs, stocks, or mutual funds. 

For interest-bearing investments that are more conservative, look to CDs, GICs, or bonds. While investing in the so-called “sure thing” and taking unnecessary risks may be tempting, this isn’t a recommended pathway. 

How do I balance saving for wealth with current expenses and debts?

The easiest solution to balancing savings with current expenses and debts is to follow the 50/30/20 principle.

This means that 50% of your after-tax income should go towards needs, 20% to debt repayment, and the last 30% to wants.   

Do I need a high income to become rich through saving?

While a higher income would seem to mean you save more, in reality, most people’s spending increases at the same rate as their increase in salary. 

This means their savings do not change when they earn more.  So improving your money management skills is often more important than having a high income. Once you’ve increased your money skills, then when your earnings increase, you’ll be able to make the most of what you make. 

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