April 1, 2016

You’re terrible at saving. It’s not entirely your fault really.

Society has ingrained this consumerism into our minds so I can’t really blame anyone that falls into it.

You could cut back your expenses, but who wants to live like a hermit anyhow? Of course, you want a decent standard of living.

It’s a good thing this one trick will help you build long-term wealth AND maintain your current standard of living.

Save Your Raise to Increase Your Savings

Really, if you boil it all down, all financial advice is just a variation of one thing – save a larger percent of your income. Some suggestions include earning some side money, but most suggest living modest lifestyles, avoiding unnecessary expenses, and saving more and more of your income. The more you save and the less you spend then the better you will be in the future.

Unfortunately, few people can even save 10% of their earnings, never mind 15 or 20%. I’ve even seen some set goals as high as 50%. These goals are great and you would be far closer to retirement if you reach them but too bad you are stuck paying five thousand different things and your check on Friday is already spent before you even got it.

So, YES you should be saving, and YES you should be saving more. You should also cut back your expenses so that you are saving a good chunk of your paycheck every month and investing in it good solid investments that yield a great passive cash-flow return in the long run (no CD’s or savings accounts in my opinion).

Most Saving Advice Actually Makes you Spend More Money Every Year

Most people will earn more money next year than they earn this year. If you save 15% of your wages, then next year you will have more money to spend and you aren’t actually saving much more.

Let’s say you earn $4k each month and you’re saving 15% which is $600 then get a 3% raise so now you’re earning $4,120 and saving $618. So you got a $120 raise but you are only saving $18 extra. Following this guidance means you will now spend $102 more. Let’s throw this idea right out the window. Our goal is to save more, invest more, and retire early. Why are we spending so much more?

Once you are actually saving a decent percent of your check, how do you continuously increase that number WITHOUT cutting back?

Wages Savings 15% Savings
Half of Increase
Percent Savings with
Decreased Spending
4000 600 600 15.0% 634 15.9%
4120 618 660 16.0% 728 17.7%
4244 637 722 17.0% 825 19.4%
4371 656 785 18.0% 923 21.1%
4502 675 851 18.9% 1024 22.7%
4637 696 919 19.8% 1127 24.3%
4776 716 988 20.7% 1232 25.8%
4919 738 1060 21.5% 1340 27.2%
5067 760 1134 22.4% 1450 28.6%
5219 783 1210 23.2% 1563 30.0%

The Trick to Saving a Larger Percent of Your Check

You need to bend the cost curve.

“What the heck does that mean?”

As I mentioned above, saving a fixed percent of your income just leads you to spend more money every year. Instead, you should save a minimum of HALF of your pay increase. In the example above, save $60 per month and take that other $60 for your personal spending.

Now of course, if you could save all of it, great. I’m only counting half because some of your pay increase should go to offset natural inflation. Plus, who wants to live a stagnant life?

Look at the chart to the right. You’ll see that if you save half of your pay raise, the percent of your wages you are saving grows every year. After 10 pay raises, you are now saving over 23% of your income.

You are saving more of your money and still have extra money to spend!

Double down – Save more and Spend Less

Let’s say each year you can cut your expenses by just 1%. With a wage of $4000 and savings at $600, that is only $34 a month you need to cut. If every year you cut an extra 1% you can see how saving your raise and reducing your costs can stack up.

After 10 years you are saving 30% of your total income!

With this trick, you are able to save a larger and larger percent of your income without actually cutting your lifestyle at all. If you add in even modest lifestyle cutbacks, you can seriously stack the savings and quickly achieve your huge investment goals.

And honestly, none of this even takes into account that you will be investing your savings into good opportunities to generate passive income.

About the author 

Eric Bowlin

Eric is an investor that achieved financial independence at the age of 30. He started in 2009 with the purchase of his first triplex and now owns over 470 rental units. He spends his time with his family, growing his businesses, diversifying his income, and teaching others how to achieve financial independence through real estate. Eric has been seen on Forbes, Trulia, WiseBread, TheStreet, Yahoo Finance and other financial publications. You can contact Eric by emailing him at [email protected] or with this contact form

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