In a world where the majority choose instant gratification over delayed gratification, it is rare to see working professionals that can live off their savings without financial stress. What is common to see are working professionals that are rich because of their regular salaries and become poor the moment this salary disappears. Yet the most effective way to gain financial freedom and break away from middle-class poverty- a condition where the same person is rich during their active career years and poor in retirement, is to save more than you spend.
Today your life is stable and comfortable not because of your savings or investments but because of your regular paycheck. All paycheck-based success will disappear at retirement and when it does the only way to maintain the same quality of life is to have saved more than you spent. Thus, the level of comfort and stability that you will experience in retirement will be based on the size and integrity of your savings and how much stable passive income it has produced before retirement. Savings is thus the foundation for retirement success and without the ability to save more than you spend you cannot achieve financial freedom.
Yet, research shows that 80% of working professionals suffer a deplorable lifestyle in retirement due to poor savings and overreliance on a paycheck-based success. Many do not save. Those who save only save leftovers of their income. And even others end up eating their savings reserves and undoing their success. Thus, in retirement, it is common to see many people whose savings cannot save them and investors whose investments produce more anxiety than income. To have a restful retirement life you must save more than you spend and invest in ways that give you financial freedom before retirement. The question is why do many people struggle to save this way?
The answer is simple, but it has little to do with the economy, your employer, or the government and more to do with the financial decisions you are making every day. Let’s see some of the reasons why you spend more than you save.
Why you spend more than you save
There are only two reasons why you spend more than you save. The first is that you value today’s comfort over tomorrow’s security. And when the emphasis is on looking good today spending will always stay ahead of savings. The second is that you are working harder on growing a consumptive lifestyle than you are on maximizing a productive lifestyle. Everyone has two kinds of lifestyle to maintain-a consumptive lifestyle and a productive lifestyle.
Your consumptive lifestyle comprises your expenses and everything that drains income away from you. And your productive lifestyle comprises your skills, relationships, sources of income and everything that produces more income for you. The challenge is that most people can sit in their living room and increase their consumptive budget by 50% or 100% in a year simply by buying the latest car, iPhone or adding a new member to their family. But only a few people can increase their productive lifestyle (Income) by the same amount in the same year.
Research shows that most people would still be earning their first salary but for the regular salary increases and promotions that have increased their income over time. This means that if left alone only a few people can significantly increase their income outside their salary. Thus, at the end of a typical calendar year, it is common to see people who have created more financial load than their income can handle. Many years of financial load surpassing income and savings is completely eroded. Thus, at the end of most people’s career life they have succeeded in making other people richer through their spending than making themselves richer through their savings. Saving more than you spend is the only way to escape this rabbit hole.
But why should you save more than you spend and is this truly necessary? Let’s take a look.
Why save more than you spend
As a working professional, the odds are stacked up against you. You earn a limited amount of income and have limited resources. Your regular income-earning period is fixed to 30years. Your time is consumed by one source of income limiting your extra income opportunities. Your relationships are more wealth draining than wealth-creating. Your future goals are bigger and more expensive than your living standard goals. And your body will require more maintenance after 30years of stressful work life. All this means that you will require more funds in the future than you do today. And you will require this fund in the absence of salary. Thus, the only way to survive in the absence of salary is to save a bigger portion of your income today, get rich slowly, and build solid passive income that can make you richer in the later part of your life than the former. This means that you must get to the point where your savings becomes your solid base and where your livelihood is funded from stable passive income than active income.
But how do you achieve this goal? Let’s take a look.
How to save more than you spend
There are only two ways to save more than you spend. The first way is to earn income that is double or triple your current expenses. And the second way is to reduce your current expenses to half of your income and live a simpler and less consumptive lifestyle. Both options require growth, discipline, and delayed gratification and is easier said than done. Yet doing hard and difficult things like this that many people would not do is the only way to achieve your desired success.
To double or triple your income, the fastest way is to add a second source of income that can give you half, the same or more income than your current expenses. To do this you need to develop high-income skills and look outside your salary income. Your salary can only crawl to success and your job-based skills and certification can at best give you another sluggish job-based income. To earn income quickly you must earn like a business owner. You must find a source of income that can help you earn business-based income without the stress of owning a business. This income must require little of your time and must produce income that is bigger than the workload. To earn this kind of income you need to develop three skills.
The first is problem-solving and creativity skills-The ability to identify high-income problems and completely solve them using your own resources and creativity. The second is rich relationship building skills-the ability to identify, form and nurture wealth-creating relationships that can expand your opportunities, possibilities, and options. And the third is sales and marketing skills- the ability to find a customer, convince them to purchase a viable product and make the sale with little or no external help. Without these three skills, all you will have are multiple painstaking extra income options that require hard work and long hours like your current job, but are yet too weak to give you the financial freedom that you desire.
The second thing you must do is to live a simpler and less consumptive life. Living a simpler life means anchoring your expenses at a point that is the same or lesser than your savings. The first step to achieving this is to see your bonuses, allowances, and annual salary increases as investing income and not spending income. If you cannot live within your 12months salary budget, you have a high maintenance lifestyle. The second step is to make your savings fail-proof. One of the biggest time-wasting activities is to save and end up eating your savings. Savings is for investing and not for spending and the only way to protect your savings from yourself is to make it fail-proof. The third step is to invest without losing money. Losing money through investing is another big-time waster. Thus, to invest without losing money you must focus your investing on generating stable passive income and not risky, unreliable, and volatile returns.
It is better to be richer in the second half of your life when you can pursue your own goals, achieve self-actualization and build a lasting legacy than to spend your whole life working for food and survival.
If you need help saving more than you spend, making your savings failproof, developing high-income skills and earning income that can double your savings and cash reserves we can help you. Send an email to email@example.com
About the author
Grace O. Agada is the most sought-after Financial Freedom Expert in Nigeria. She is a renowned Author, Financial Advisor and Keynote Speaker. And she is popularly known as the Financial Freedom Advisor for working Class seeking to join the Upper class. Her goal is to help working professionals and CEOs Fund their Lives from Passive Income, escape middle-class poverty and Join the Upper class. Grace is the Author of three books and possibly the most widely read financial articles. Her articles are spread across seven national newspapers and four of the most popular Nigerian Blogs. Grace is also the Founder of the University of Wealth, The Rich Retirement Life Quarterly Publication, The Wealth Creating Employee Quarterly Report, and the Wealthy Business Blueprint Program. Grace has been featured on BBC Africa. Business Day TV. Inspiration FM. and inside Naijatv. And she consults for Numerous Top Organizations, Company Directors, CEOs, C-Suite Executives, and High-Income Professionals. To connect with Grace, send an email to firstname.lastname@example.org.