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Image by Travis Essinger

Saving money takes work and commitment and it helps to always remind yourself why you are doing it. You are doing this to build a life of financial freedom, independence, and fulfillment. This is not going to happen overnight. Get-rich-quick schemes do not exist – unless you are considering a career in illegal drug or organ donor trafficking. People get rich through hard, continuous, and relentless work. The results compound over time. When you decide not to buy that pair of $300 leather boots and invest that money, that small sacrifice (along with many others) will compound into riches over the years and will help you achieve a state of financial freedom.

A Savings Roadmap

The ultimate goal of saving money is not to tuck that money away under your mattress or into a savings account. The objective is to make that money work for you through wise investment. There is, however, a path that we need to follow before arriving at this outcome of investing our savings. This path is littered with the following hurdles.

Hurdle 1: Get to a Point of Equilibrium
Financial equilibrium is a situation in which your inflows/income equal your outflows/expenses. Many people live in financial deficit. Their income is less than their expenses and the difference is funded through debt (mostly credit cards). For example, your income is 9,000. Your expenses are 10,000. You need to borrow 1,000 per month to keep going.  The first hurdle is to reduce that 1,000 deficit. This can be done in one of two ways – either, you need to earn 1,000 more or you need to spend 1,000 less. If you are a salaried employee and not able to work overtime, the only option is to spend less.


Hurdle 2: Start Eliminating that Debt

If reaching equilibrium was hard, this next hurdle is going to be even harder. A big chunk of the 1,000 worth of savings came through the elimination of unnecessary spending. We all have those monthly expenses that are easy to eliminate. For example, that gym membership you never use, canceling that second streaming service, the monthly travel insurance policy that some telemarketer "bullied" you into buying, etc. This, however, is not enough. You need to start eliminating debt if this debt was not used to produce income (such as a mortgage on an apartment that you are renting out). Credit card debt is a good place to start.

If you find yourself in a position where your income exceeds your expenses plus credit card interest payments, and you want to invest this surplus cash, where would you invest it? US treasury bonds pay you around 2 percent per year, the stock market delivers returns on average of 10 percent. If you are paying 30 percent on your credit card, putting that surplus cash into paying off that debt is an "investment" delivering a return of 30 percent. This is a GREAT investment so pay off the credit card first!

After eliminating the "easy" expenses, you need to tackle the "hard" ones.  Ask yourself these questions: Do I really need to eat out three times a week? Do I need to live in that swanky downtown apartment? Maybe you need to take the subway and the bus, instead of an Uber to work. Maybe you need to sell that expensive car and use Uber and the subway. Instead of renting an office, you can look at co-working office arrangements. In your business, you could look to outsourcing payroll and accounting jobs. Technology, outsourcing, and the sharing economy have made it easier to save.


Hurdle 3: Start Investing

This is where the fun starts....keep reading!

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