How to save money is a very popular discussion topic among my clients. Everybody wants to know how to save money and what is the latest technique that is going to guarantee a nice lump sum in the future. Well, my response to this is always the same. Saving money is not rocket science and there is no miracle technique that is going to guarantee that you meet your savings goals. The only way to save money is to not spend everything that you earn. It’s as simple as that. The problem is that many persons are not prepared to wait for the savings to grow. Rather than waiting for the savings to grow over time, most persons are not disciplined enough to stick it out. Well, another new year is upon us and I am throwing out a challenge to everyone.
The Save A Dollar A Day Challenge
I challenge you to save just $1 per day for 365 days starting on January 1st. Just about everyone can save $1 per day. You would be surprised how much a dollar saved per day at a modest rate of interest can grow. No matter where you live in the world, and no matter what currency you earn in, the aim is to save $1 for each day. At the end of the year you would have saved $365 plus you would have accumulated some interest if you opt to save with your local bank, credit union or building society. This is a manageable and simple way to save money. It may seem small but for those of you who are struggling to save anything at all, it is a big step in the right direction.
Now I know that some persons earn daily, some earn weekly, some earn fortnightly and some earn monthly. Based on how frequently you earn, you should steadily save enough so that it amounts to at least $1 per day which includes the weekends and holidays. This means that if you earn weekly, at the end of the week you should set aside $7 towards your savings. If you earn fortnightly or monthly, you should set aside $14 and $31 respectively at the end of each pay period. If you follow this principle, you will come to realize that saving $1 million is totally achievable as long as you commit to it and discipline yourself to do it as a lifestyle habit.
How to Save One million dollars by Age 65
For those of you who feel like you can take on a bigger savings challenge, I will show you how to save one million dollars by the time you reach age 65, no matter what your current age. How quickly you save one million dollars depends on your current age, the rate of interest that you will earn on your savings and how much you set aside as savings each pay period. The following table shows you how you can save one million dollars by the time you reach retirement at age 65.
12% Annual Interest Rate
Starting Age Daily Savings Monthly Savings Yearly Savings
20 $2.00 $61.00 $730.00
25 $3.57 $109.00 $1,304.00
30 $6.35 $193.00 $2,317.00
35 $11.35 $345.00 $4,144.00
40 $20.55 $625.00 $7,500.00
45 $38.02 $1,157.00 $13,879.00
50 $73.49 $2,235.00 $26,824.00
55 $156.12 $4,749.00 $56,984.00
Source: David Bach Smart Couples Finish Rich
Please note that the illustration does not take taxes into consideration. If taxes are considered, the amounts would be less.
A few things which you should take note of are that:
1. The earlier you start saving, the less you have to save daily in order to save one million dollars by age 65.
2. The compounding effect is great. For example, if you start saving at age 55 and you save $56,984 per year for 10 years until you reach to age 65, you would have saved $569,840 altogether. The difference of $430,160 is totally due to interest and the compounding of that interest! The interest earned is almost as much as the amount saved! Now if you can find a savings account that will pay you more than 12% you can just imagine how much interest would accrue over time.
Now this alone should be enough motivation for you to start saving at least $1 per day. The more you can save the better and the longer you can save, the better still.
Please do let me know how much you have decided to save daily and how well you’re progressing. So there it is people…how to save money simply and easily!