Updated: May 2021
Once you tackle your debt and have it under control, you can start taking leaps forward towards your ‘Off Ramp’. Ramping up your savings will allow you to accelerate towards your financial goals, increase your net worth, approach financial stability and independence, and remove ‘money stress’ from your life. Today, I’ll cover the ‘Why Save’, how to ‘Ramp Up Your Savings’, and why you should ‘Ramp Up Your Savings’. With that said, let’s dig into Step 5: Ramp Up Your Savings.
Why Save?
In its simplest form, saving money is a way to pay your future self. The money you save now gives you more time at some point in the future to do something you want to do, like travel, or to not do something you do not want to do, like work. The money you have saved, save now, and will save in the future will be used by you at some point in the future, whether it is in 1 month, 1 year, 10 years, or later in the future. What will you use this money for in the future? You’ll use most of your money for three purposes: goals, retirement, and emergencies.
How Do Your ‘Ramp Up Your Savings’?
You need to make a conscious choice to increase your savings. Here are a few ways you can start ramping up your savings:
- Automate your savings – It will be significantly easier for you to save if you don’t even let the money get into your hands. Set up an allotment out of your paycheck to automatically go to into your savings or investments. Company retirement plans are usually contributed to in the same way.
- Pay off your debt then pay yourself – Once you’ve paid off all of your high interest rate debt, keep making those payments, but pay yourself instead of the companies you owed money to. BUT this does not mean go and spend the money that went towards paying off debts. It means put the money into an emergency fund, savings, or investments.
- Cut your costs – Whether it is fixed or variable expenses, you can cut costs and put the extra money towards saving more. Check out the posts below for ways to cut expenses:
- Increase your income – If you can, talk to your boss about a pay raise. If you work for the government and a pay raise is pretty much fixed for everyone, consider getting a part-time job or doing some small work on the side. If you have time or a hobby that you can use to make some money, you can also put that income towards savings. If you do increase your income, you can increase your spending, but you should allocate some of your new income towards savings.
- Save your pay raises – If you get a pay raise every year, don’t increase your spending. If you lived off of your income from the previous year, do you need to increase your spending just because you received a pay raise?
Why ‘Ramp Up Your Savings’?
Time is your best friend and ally when it comes to saving and investing. The more time you have your money invested, the more your money can be compounded over that time. Over the long run, the more you save every week, month, or year, the larger that sum will have grown when you need it reach a long-term goal or retirement. Even if you have no savings right now, if you can save $100 per week ($433.33/month or $5200/year) for twenty years at a 7% growth rate, you end up with over $225,000. Raise it to $200 per week at 7% growth, and you end up with $450,000 at the end of 20 years. Check out the Growing Your Money page to explore compound interest a little more. Also, to run your own numbers, check out the Savings Calculator or the Retirement Nest Egg Calculator. The more you save now, the faster you will approach your ‘Off Ramp’.
If you want to go back and look at the earlier steps of the ‘Rat Race Off Ramp’, check out the 6 Steps of the ‘Rat Race Off Ramp’ page.
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