In Mr. Money Moustache’s article “The Shockingly Simple Math Behind Early Retirement,” MMM makes it fairly simple to understand how people retire early. Perhaps, I’ll say it this way, spend less and you have more money to save. This is not news breaking information. Then why don’t more people do it?
When looking at our monthly budget we had to decide what line items we would decrease and which ones we’d simply eliminate. We didn’t have a satellite or cable bill to cut or a Starbucks budget to get rid of. What we did have was money without a purpose. We’d have an extra $100 to $150 each month that didn’t have a job. Spent on trips to Target, a few trips to our local ice cream shop and of course mindlessly browsing on Amazon.
I always had a savings account. I’d never put as much as I should have or could have. If I had an extra $50, I might put half of it in savings and the other half I’d spend on whatever I wanted. In my mind, I was wise. I was being financially savvy. After all, I was saving. What I wish I had known was that my money could make money for me. Knowing what compound interest could do for me might have been a motivator to save more.
Why didn’t it occur to me to save the whole $50? In the situation above, I was rewarding myself for saving $25. What I failed to realize was that I was actually shortchanging myself. I could spend the $25 now or reap the rewards of saving the entire $50 later. When I think about the several times where I had extra money I realized that the extra money didn’t have a job. It didn’t have a purpose. Saving it seemed so useless. What was I saving for anyway? It would sit in a savings account earning less than 1% interest.
Today I think carefully about every purchase. Rather than think about what I’m getting, I think about what I’m giving up. If I purchase this $25 item today what am I losing out on? Money that is is not invested is money not growing. Financial freedom is a step closer if your money is making money. Be cautious though and don’t over deprive yourself. I have fallen victim to being in starvation mode. Financial starvation will make you lose sight of the big picture. Too much deprivation and you risk binging later on. Rather than denying yourself everything, consider, giving up one thing in order to have something else.