Can you imagine anything worse than working tirelessly into your late 60s or 70s because you can’t afford to retire?
Not a particularly nice thought is it? However, the harsh reality is that this is what many people go through.
In fact, in America The Employee Benefits Research Institute reports that 37% of all employees age 35–44 and 34% of employees age 45–54 have less than $1,000 saved for retirement.
If that’s you, then you may now be thinking ‘Well the reason I have little savings is because I don’t earn enough!’ But do you have to be earning a lot of money to retire wealthy?
The reality is you don’t. The reason people struggle to retire wealthy is down to a lack of financial knowledge. Many of us are never taught how to manage money or how to invest, so it’s no surprise why so many people end up retiring broke. If you want to retire wealthy on an average income you have to really learn how to master your money.
You see countless stories in the media of people who win the lottery and lose everything or celebrities that end up filing for bankruptcy. They are living proof that without sound financial knowledge you’ll struggle to retire wealthy. It’s how much of your money you can keep, rather than how much you earn.
How you can master your money
- Manage your spending habits
In order to best manage your money you have to figure out exactly where your money goes each month. A budget is a great way to do this as it allows you to determine your spending priorities before the month begins.
Budget for your basics such as food, rent, transport and utilities. After this you can compare your predicted monthly budget alongside your monthly income. You may find you have to cut back on certain luxuries such as dining out or social events. Making cuts to your spending will allow you to start saving more money towards your retirement.
In America most people spend around 70 percent of their annual budget on housing, transportation and food. If you’re able to also cut back on these expenses then it will help massively in improving your savings rate.
2. Pay yourself first
The first step to mastering your money is to pay yourself first. Whenever you earn money every month, you need to put it straight towards your savings. Putting money aside each month is the best way to allow your money to grow over time. Whether it’s 5, 10 or 20% of your income, everyone can afford to contribute a certain amount to their savings each month. It’s always better to start small than not start at all.
3. Invest in Alternative solutions
In order to compound your money as quickly as possible you need to invest your savings. Putting money in a savings account is no longer a viable option, as the interest rates that banks pay is very small.
There are now some great investing solutions available to the market that are completely passive and hands off, but most importantly yield high returns each year. Robo-investing solutions such as Nutmeg and Betterment are a good example of this, then there’s also automated trading services such as the award-winning 8topuz, who are known to yield some of the largest returns in the investing space.
4. Consistency and patience
Finally you have to be willing to be patient. Building your wealth takes time and it’s important to remember that there are no get rich quick schemes (unless you win the lottery!). If you want to retire with enough money then you’ll have to be disciplined with your spending and investing every single month.
There are countless examples of people who started following these principles in their 40s/50s and have been able to build a large amount of wealth. You could retire at 65 with $1 million if you started investing $800 a month from the age of 40-years-old (assuming for an average return of 10% each year).
You could even reduce the amount of years it takes for you to reach $1 million by using an investment solution that can yield even higher returns than 10%, such as 8topuz.
You have two scenarios
Now you know what it takes to build wealth on an average income, you are now left with two scenarios.
You could retire with peace of mind, spending your free time travelling, reading, and enjoying time with your family.
Or you could be forced to work away each day, wishing you’d made better financial decisions when you were younger.
Don’t want to end up doing the latter? Then you better start making some changes today.