Author James Clear in his monumental best selling book, and the one book I highly recommend everyone read at least twice has a lot to say about the 1% rule.
The 1 Percent Rule states that over time the majority of the rewards in a given field will accumulate to the people, teams, and organizations that maintain a 1 percent advantage over the alternatives. You don’t need to be twice as good to get twice the results. You just need to be slightly better. –James Clear
The graph below illustrates how getting 1% better each day in a year compounds to you being 37% percent, almost 38% better a year later. You can also get a lot worse by being 1% worse everyday.
I point all of this out to tell you that what if you made the decision to start saving 1% a month until you build up a savings rate higher than that.
If you make $40,000 dollars a year. If you get paid twice a month, your check is most is $1,666.66 every time you get paid. Take out 30% ($500) for taxes and everything else, you are coming home with $1,166 or so a month.
1% of that $1,166 is literally $11.66, lets just round it up for Gods sake to $12 bucks. You most likely spent that last weekend to grab a coffee and a pastry at Starbucks.
Now let’s take that 1% or $12 a month out over a year and it equals 12% of your total take home that you are now saving, a total of $144 dollars. It doesn’t seem like much does it?
Again, this is just a start. My hope for you is that you continue to build up your savings rate, until you are doing as much as you possibly can save. Maybe it is 20% percent of your income, and then 50%. We aren’t saving for the sake of saving here. We are saving so we can buy our freedom and our time back.
Remember retirement isn’t an age. It is a financial number. Everyones number is different. But once you save enough money to be able to live off of the income that your assets produce, you are done with the rat race.
I wish I would have been thinking this way when I was in my twenties. I instead was thinking about how can I climb the ladder to make more money. And luckily I was smart enough after a period of time to determine that the goal of making more money, wasn’t to be able to spend more money. No. The point of making more money was to invest so I no longer needed that job or career for the money.
Let’s get morbid for a second here. I have to. Life is really short. If you look at the average Americans life. They spend about 1/3 of their time on the job from age 18-65. 1/3 sleeping. And then another 1/3 of leisure time.
If you prescribe to the old school way of thinking you will fall into this same trap. You will follow the governments rules and the groupthink that exists in society that you have to work until age 65-70 and then hopefully retire and be able to live comfortably for next 10-15 years of your life. If you are lucky enough to get those 10-15 years in retirement.
Since age 35 I made it my mission to find a way to totally usurp this prescription. How can I retire at age 45. Keep in mind retirement doesn’t mean do nothing. Retirement means doing what I want to do when I want to do it.
Now I can hear some people saying right now, I love my job. I don’t ever want to leave it. I don’t hate work. I love it. I agree with you. I hope you do love your work. But I know for sure you would love it more if you didn’t need it. I know I would.
I know everyone is a different points in their investing and savings journey. My post in this post was to help motivate you to just start. It doesn’t take much. You have to start getting in the habit of doing it consistently and doing it first. Yes. pay yourself first.
To your success and your future.
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