Most of us will not have the good fortune of winning the lotto nor coming into a significant amount of money through an inheritance. The key to building wealth therefore will be about your ability to generate income, save a good part of that income and then invest those savings well.
Many of us put the cart before the horse by focusing on the investment stage of the process without realising that it is really the first two stages - generating income and saving - that will be the real determinants of our wealth in future years.
At the beginning of another year it is a great time to focus on the savings element of this equation to see whether you can wring out even more available funds from your take home pay / income.
"The Millionaire Next Door" written by Stanley & Danko in 1996 provide an interesting insight into the average millionaire in the US and how they have built their fortune. They found that frugality was the foundation for building wealth and provided the following evidence of this frugality:
- self-made millionaires spend significantly less for suits
- the majority did not buy expensive shoes
- the majority did not buy expensive watches
- do not drive new cars and spend the same as the average person on car acquisitions
The book also provides some practical advice they found in their study of successful millionaires:
- Operate on an annual household budget
- Know how much your family spends each year for food, clothing and shelter
- Have daily, weekly, monthly, annual and lifetime goals
- Spend time planning your financial future
This discussion leads me to an interesting article I read in Sunday's Courier Mail - Losing billions in loose change . the article quoted research that found "about $46 billion, or $2000 a person, was sitting in loose change jars, car consoles, piggy banks, shop tills, office floats and a corner of the purse and Ratecity said it was costing Australians as much as $2.5 billion in lost interest ... The average Australian could earn an extra $115 per year from interest if they deposited loose cash into a high-interest savings account"
It also found - "that Australians were losing $3.36 billion each year on comprehensive car insurance by not shopping around for a better deal."
So here are some practical examples of how we can all start to wring out some more savings this year - don't leave that spare change laying around and go back and check that you are getting a good deal with your car insurance.
There are many other strategies depending on your personal circumstances. Three good sources of ideas to get you started are:
- Simple Savings - www.simplesavings.com.au
- Cheapskates - www.cheapskates.com.au
- Choice - www.choice.com.au
I hope this provides some useful tips for getting your savings plan off to an even better start in 2010. Good luck and happing saving!