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A play in four acts
Prologue
A million in our case is a conventional figure, a large amount of money that will be enough for a large purchase. For some, it may be $ 5000 - an initial mortgage payment for a small apartment costing one and a half to two million or a first installment for a car on a loan. For some, this is really $ 15000 - if, for example, buying real estate in the capital. It is not the size of the amount that is important, but the fact that it is impressive and will have to be saved for a long time and consistently.
There is such a phenomenon: no matter how much money a person earns, he spends everything. Earns $ 300 - closer to the salary sits with empty pockets. I started earning $ 1000 - the same story. Along with income, needs are invariably growing, and it seems that there is no maneuver for saving. But this is not always the case, more often than not it is quite realistic to set aside part of the income, even a small one, in order to save up for the necessary large purchase. It is only important:
1 action. We plan, set a goal
The basis of accumulation is competent financial planning: accounting for expenses and income, a clear statement of financial goals. Estimate how much money you need to save and how much time you are willing to spend on it. Then it will become clear how much you need to save on a monthly basis. Consider if your budget can handle this. If not, increase the savings period or correct your dreams. Perhaps it will be possible to get by with a simpler car or an apartment farther from the center.
Planning example # 1
The goal is an initial payment (15%) for an apartment for $ 30000.
The amount is $ 5000.
The term is 3 years.
The monthly income is $ 1000.
Monthly savings - $ 150.
Planning example # 2
The goal is an initial payment (15%) for an apartment for $ 100000.
The amount is $ 15000.
The term is 5 years.
The monthly income is $ 1500.
Monthly savings - $ 300.
What you need to consider if you have to save for more than one year
2 action. We calculate the optimal amount for regular savings
Remember that you won't be able to accumulate a large amount very quickly. You can draw an analogy with a diet: if you decide to lose 10 kg, this cannot be done in a week sitting on the water. You can seriously harm your health or break loose and eat a whole cake (and the diet will go to waste), so it is important to lose weight gradually, according to plan. It's the same with money: if you choose to save almost all of your money, limiting yourself to everything, it will lead to frustration and imbalance. The amount of monthly deductions for savings (provided that you do not have loans) should not exceed 20-30% of your monthly income. The surest way is to calculate, plan and act clearly according to the plan for several years in a row.
An example of calculating the optimal amount No. 1
The amount is $ 5000.
The term is 3 years.
You need to save every month - $ 150 (17% of income of $ 1000)
The total amount (on a replenished account for 3 years at 4.4%) - $ 5300
An example of calculating the optimal amount No. 2
The amount is $ 150000.
The term is 5 years.
Every month you need to save $ 300 (19% of the income of $ 1500).
The total amount (on a replenished account for 5 years at 4.4%) is $ 155000.
What to consider and what are the options
3 action. We optimize costs
The most difficult action. You need to find out where your money comes from and what you spend it on, scrupulously analyze spending and income, and then optimize your budget and change your habits. It hurts, but it's worth it.
Optimization examples
John is used to dining at an Italian restaurant on the first floor of the business center. Lunch (pasta, soup, salad, coffee and sometimes dessert) costs about $ 10. Here is the zone for saving: John began to take a container with food from home. Homemade food is also not free, but much cheaper, now the price of his lunch is about $ 1. Savings per month - $ 100.
John usually took a taxi to work and back - $ 5 there, $ 5 back. Taking a course on rationalization of expenses, he bought a travel card for $ 30. Savings per month - $ 100.
Valera smoked for a long time, but now he quit - primarily because of the health indications, but this also brought a financial bonus. He smoked cigarettes costing $ 2, about half a pack a day, sometimes more. It turns out that the monthly savings are more than $ 30.
In total, John found free $ 230 a month, he can save them by slightly optimizing his lifestyle. Of course, John is a collective character, and not everyone has such a wide field for cutting costs. But, as a rule, everyone has the possibility of at least some optimization, you just need to carefully analyze your expenses. And if you have to save for a very long time, you should not deprive yourself of all the pleasures. A visit to a restaurant once or twice a month will not cause too much damage to the budget, but it will significantly improve the mood of a connoisseur of Italian cuisine on the way to his “million”.
What to consider and what are the options
4 act. Choosing financial instruments
It is possible to save up faster - you need to insure yourself against possible risks. The main thing is to save competently, and not "in an envelope" to which there is always access (and hence the temptation to spend, because "I really want to please myself"). Moreover, even the smallest inflation gradually eats up your savings in the envelope. And it is better that your savings not only not suffer from inflation, but also overtake it.
What financial instruments are suitable for long-term savings?
Bank deposit. The safest and most reliable way to save and accumulate. It will be easier to fight temptations than in the case when the money is hidden in the buffet. Just make sure that the amount of the deposit together with interest in one bank does not exceed $ 20000. Such an amount definitely falls into the state deposit insurance system, and even in the event of bankruptcy of the bank, you can return them a couple of weeks after the bank's license was revoked. The only drawback is that interest on deposits is low and does not always cover inflation.
Securities. Investing in securities is always a risk, although some instruments (for example, bonds of the Ministry of Finance or large stable companies) are reliable, and the risk of default on them is minimal. It is better to start investing with the safest instruments.
Mutual investment funds (MIFs) allow novice investors to invest even small amounts, entrusting them to be managed by professionals. There are different mutual funds: some invest in stocks or the same government bonds, others specialize in gold or real estate. Mutual funds can be a good investment, but do not forget that the higher the potential return, the higher the risks. In addition, mutual funds take some of the income for themselves as a reward for asset management.
An individual investment account (IIA) can be used both for direct investments in securities and for purchasing units of mutual funds. The main IIA bonus is the ability to receive a tax deduction, which allows you to pay a lower tax on investment income or return the tax already paid. But tax incentives are valid only if the IIA is not closed earlier than three years later. And this is a good way to save money from temptation.
Endowment life insurance is another popular, but again risky way to make long-term savings. The yield on endowment life insurance contracts is higher than on deposits. But these investments are not protected by the deposit insurance system, unlike bank deposits. An additional advantage of endowment life insurance is the ability to receive a tax deduction.
Take action!
The most difficult thing is to accumulate a “million” (that is, “a lot of money” exactly in your understanding) - to start doing it. After the first accumulated million it will no longer seem like something scary and unrealizable, and dreams of a new apartment or a car are so unrealistic.
And never forget about yourself, your growth and development. Sometimes investing in yourself and your education is more beneficial than following a plan without deviations. But then you will earn more or it will be easier to work.
Prologue
A million in our case is a conventional figure, a large amount of money that will be enough for a large purchase. For some, it may be $ 5000 - an initial mortgage payment for a small apartment costing one and a half to two million or a first installment for a car on a loan. For some, this is really $ 15000 - if, for example, buying real estate in the capital. It is not the size of the amount that is important, but the fact that it is impressive and will have to be saved for a long time and consistently.
There is such a phenomenon: no matter how much money a person earns, he spends everything. Earns $ 300 - closer to the salary sits with empty pockets. I started earning $ 1000 - the same story. Along with income, needs are invariably growing, and it seems that there is no maneuver for saving. But this is not always the case, more often than not it is quite realistic to set aside part of the income, even a small one, in order to save up for the necessary large purchase. It is only important:
- tune in to the fact that it will take a long time to save;
- clearly plan finances;
- postpone regularly for the desired goal;
- competently optimize costs;
- do not store money “under the mattress”.
1 action. We plan, set a goal
The basis of accumulation is competent financial planning: accounting for expenses and income, a clear statement of financial goals. Estimate how much money you need to save and how much time you are willing to spend on it. Then it will become clear how much you need to save on a monthly basis. Consider if your budget can handle this. If not, increase the savings period or correct your dreams. Perhaps it will be possible to get by with a simpler car or an apartment farther from the center.
Planning example # 1
The goal is an initial payment (15%) for an apartment for $ 30000.
The amount is $ 5000.
The term is 3 years.
The monthly income is $ 1000.
Monthly savings - $ 150.
Planning example # 2
The goal is an initial payment (15%) for an apartment for $ 100000.
The amount is $ 15000.
The term is 5 years.
The monthly income is $ 1500.
Monthly savings - $ 300.
What you need to consider if you have to save for more than one year
- Inflation - it gradually devalues your savings. However, if you keep your money not “under the pillow”, but in a reliable bank, this will help protect it.
- Possible temptations. There are always "urgent needs" that provoke to pinch off a little from the savings. Therefore, it is better to choose storage options that are difficult and unprofitable to “uncork” ahead of time, for example, a time deposit or “people's” bonds of the Ministry of Finance.
- Imbalance in current expenses and income. It happens that the situation changes - what if you cannot always save the amount that you planned? This risk must also be taken into account.
2 action. We calculate the optimal amount for regular savings
Remember that you won't be able to accumulate a large amount very quickly. You can draw an analogy with a diet: if you decide to lose 10 kg, this cannot be done in a week sitting on the water. You can seriously harm your health or break loose and eat a whole cake (and the diet will go to waste), so it is important to lose weight gradually, according to plan. It's the same with money: if you choose to save almost all of your money, limiting yourself to everything, it will lead to frustration and imbalance. The amount of monthly deductions for savings (provided that you do not have loans) should not exceed 20-30% of your monthly income. The surest way is to calculate, plan and act clearly according to the plan for several years in a row.
An example of calculating the optimal amount No. 1
The amount is $ 5000.
The term is 3 years.
You need to save every month - $ 150 (17% of income of $ 1000)
The total amount (on a replenished account for 3 years at 4.4%) - $ 5300
An example of calculating the optimal amount No. 2
The amount is $ 150000.
The term is 5 years.
Every month you need to save $ 300 (19% of the income of $ 1500).
The total amount (on a replenished account for 5 years at 4.4%) is $ 155000.
What to consider and what are the options
- You need to postpone the planned amount at all costs, without excuses and indulgences. Make it a rule to save first, and only then spend the rest. The first six months will be hard, then it will become a habit.
- Set up an automatic transfer of the required percentage of income to your savings account in the Internet Banking application.
3 action. We optimize costs
The most difficult action. You need to find out where your money comes from and what you spend it on, scrupulously analyze spending and income, and then optimize your budget and change your habits. It hurts, but it's worth it.
Optimization examples
John is used to dining at an Italian restaurant on the first floor of the business center. Lunch (pasta, soup, salad, coffee and sometimes dessert) costs about $ 10. Here is the zone for saving: John began to take a container with food from home. Homemade food is also not free, but much cheaper, now the price of his lunch is about $ 1. Savings per month - $ 100.
John usually took a taxi to work and back - $ 5 there, $ 5 back. Taking a course on rationalization of expenses, he bought a travel card for $ 30. Savings per month - $ 100.
Valera smoked for a long time, but now he quit - primarily because of the health indications, but this also brought a financial bonus. He smoked cigarettes costing $ 2, about half a pack a day, sometimes more. It turns out that the monthly savings are more than $ 30.
In total, John found free $ 230 a month, he can save them by slightly optimizing his lifestyle. Of course, John is a collective character, and not everyone has such a wide field for cutting costs. But, as a rule, everyone has the possibility of at least some optimization, you just need to carefully analyze your expenses. And if you have to save for a very long time, you should not deprive yourself of all the pleasures. A visit to a restaurant once or twice a month will not cause too much damage to the budget, but it will significantly improve the mood of a connoisseur of Italian cuisine on the way to his “million”.
What to consider and what are the options
- Keeping track of income and expenses even after budget optimization is useful. You can use special applications or spreadsheets.
- Use any safe opportunity to save and increase your fortune: tax deduction, bank cards with cashback, applications for tracking discounts and promotions in stores.
- Some costs do not have to be discarded, they can be reduced. For example, groceries in a hypermarket can be cheaper than in a convenience store. And it's better to go to it well-fed and with a list of necessary things - then you definitely don't buy too much.
4 act. Choosing financial instruments
It is possible to save up faster - you need to insure yourself against possible risks. The main thing is to save competently, and not "in an envelope" to which there is always access (and hence the temptation to spend, because "I really want to please myself"). Moreover, even the smallest inflation gradually eats up your savings in the envelope. And it is better that your savings not only not suffer from inflation, but also overtake it.
What financial instruments are suitable for long-term savings?
Bank deposit. The safest and most reliable way to save and accumulate. It will be easier to fight temptations than in the case when the money is hidden in the buffet. Just make sure that the amount of the deposit together with interest in one bank does not exceed $ 20000. Such an amount definitely falls into the state deposit insurance system, and even in the event of bankruptcy of the bank, you can return them a couple of weeks after the bank's license was revoked. The only drawback is that interest on deposits is low and does not always cover inflation.
Securities. Investing in securities is always a risk, although some instruments (for example, bonds of the Ministry of Finance or large stable companies) are reliable, and the risk of default on them is minimal. It is better to start investing with the safest instruments.
Mutual investment funds (MIFs) allow novice investors to invest even small amounts, entrusting them to be managed by professionals. There are different mutual funds: some invest in stocks or the same government bonds, others specialize in gold or real estate. Mutual funds can be a good investment, but do not forget that the higher the potential return, the higher the risks. In addition, mutual funds take some of the income for themselves as a reward for asset management.
An individual investment account (IIA) can be used both for direct investments in securities and for purchasing units of mutual funds. The main IIA bonus is the ability to receive a tax deduction, which allows you to pay a lower tax on investment income or return the tax already paid. But tax incentives are valid only if the IIA is not closed earlier than three years later. And this is a good way to save money from temptation.
Endowment life insurance is another popular, but again risky way to make long-term savings. The yield on endowment life insurance contracts is higher than on deposits. But these investments are not protected by the deposit insurance system, unlike bank deposits. An additional advantage of endowment life insurance is the ability to receive a tax deduction.
Take action!
The most difficult thing is to accumulate a “million” (that is, “a lot of money” exactly in your understanding) - to start doing it. After the first accumulated million it will no longer seem like something scary and unrealizable, and dreams of a new apartment or a car are so unrealistic.
And never forget about yourself, your growth and development. Sometimes investing in yourself and your education is more beneficial than following a plan without deviations. But then you will earn more or it will be easier to work.