The Secret to Saving Money​

If you had saved 10% of your income since you started working, how much money would you have right now?

For example, if you work for 20 years making an average of $25 per hour, 40 hours per week, 50 weeks per year for a total of $1 million total pay. If you save 10% of that you end with $100,000 in savings. Add some annual pay increases, another 20 years and modest investment profits, you could end with a BIG savings account.

Having a big savings account has many advantages.

  • You can get into activities you enjoy.
  • You can get out of activities you do not enjoy.
  • You have more choices of where to live.
  • Emergencies and potential emergencies are less stressful.
  • You can help the people you love.
  • You can take advantage of wonderful opportunities to improve your life.
  • You can donate large sums to nonprofit organizations.
  • You can become independently wealthy and not work another day of your life, if you wish.

The Problems

Building up a large amount of savings can be very difficult, if not impossible. For example, an immediate need feels more stressful than a future need. Or you earn some extra money and want to reward yourself with a vacation.

Even if you manage to set aside some cash, you might make it too easy to spend. You find something you really want to buy and promise yourself you’ll pay it back to your savings, but you never do.

However, if you are like most people, you are good at paying your monthly bills. You can’t save, but you always pay what you owe each month.

How to Save Your First Million

“When a surplus is made part of the ‘need’ by disguised outgo, a surplus occurs. Only then will it occur. It will not happen otherwise.” — L. Ron Hubbard

Let’s break this down.

“Surplus” is extra money you do not need to spend.
“Need” is something that is required.
“Disguise” is hiding something by changing its appearance.
“Outgo” is spending money; the opposite of income.

So to have extra money in savings, you make it look like a bill that you are required to pay each month. You pay it because you have to pay it.

Two Examples

Sheila earns $5000 per month. She wants to save $500 per month, but after she pays her needs (food, rent, phone, taxes, etc.) she has nothing left to save. So she disguises $500 as another “need” by asking her boss to put it in her retirement account. The $500 is disguised as a tax that is deducted from her pay just like all her other taxes. Her company invests her money so it earns 10% on average per year. So after 45 years, Sheila is delighted to see her retirement account is over $4 million. (Note: You can check your own calculations using an online savings calculator.)

Joe also wants to save $500 per month, but he works for himself and can never save money. So he gets an insurance policy, called “whole life” insurance that costs $500 per month. He gets a monthly statement and pays it like any of his other bills. The insurance company quietly sets aside part of the $500 for Joe to use in the future. It also adds 3% each year in interest. Joe knows he could earn more money from other investments, but he just does not have enough self-control to save it any other way. If Joe makes the payments for 45 years, he ends with $1 million.

Joe also pays his Social Security payments. Because he owns his own business, a tax expert offered to get him out of those payments with a complicated business tax setup, but Joe wanted his $2200 per month that starts when he turns 67 as the payments continue until he dies.

Eight More Ways to Disguise Your Savings Payments as Bill Payments

Any method, that makes you save money, is good enough. Even if you lose a little money on the method, it’s fine as long as you end with a cash surplus.

1. Set up an automatic payment from your checking account to a joint savings account. This joint savings account includes a friend or family member who must approve the withdrawal before you can take it out.

2. Arrange an automatic deduction from your checking account into an investment that includes “severe penalties for early withdrawal,” such as a Certificate of Deposit (CD).

3. Certain credit card programs allow you to make monthly payments into an investment account, such as accounts with insurance companies, banks and investment companies. The amount you authorize is automatically charged to your credit card each month. The best programs take a long time to get back your money.

4. Open a retirement account with rules set by the government. You get tax benefits for putting money into the account and penalties if you take it out before you retire. Any investment company can help you open a retirement account as well as set up the automatic payments. Once you set it up, force yourself to pay the maximum amount allowed by law. If you need to get a loan or use a credit card to pay the amount, DO IT. Do the math and you will see the interest you pay on the small loan is insignificant compared to the long-term benefit of the retirement fund. And these loan payments are actually disguised savings payments, right?

5. Buy real estate with a loan and live in it. Part of each loan payment applies to your ownership or your surplus. The value of the property will probably increase, as well. The hassle and costs of selling the property can make you leave your surplus alone.

6. Upgrade your property with or without a loan. For example, you buy the supplies you need to build a porch and pay a carpenter to show you how to do it yourself. Your improvements pay off when you sell the property.

7. Start or invest in your own business. Make sure the money you pay into the business will eventually come back to the business, and then to you, as covered in “The Bean Theory.” The business IS a terrific savings account if you eventually make it successful.

8. Force yourself to spend money to improve your skills. Become more valuable to others so they will pay you more money. You can do this with higher education, online training, learning through research, apprenticeships, on-the-job training, performance coaching and so on. Investing into yourself can pay off each year for the rest of your working career.

Action Steps

1. Decide how much you wish to save each month. The amount should not be so high that it becomes a burden. You might be surprised how easily you can live on 90% of your current income when you are saving 10%.

2. Then find a bill or system that will force you to save money. The need to pay the disguised bill must be as urgent as your other bills. In other words, you must pay it each month, without fail.

3. The cash reserve must also be difficult for you to spend. For some people, a small penalty is enough to leave the money alone. For others, it must be more difficult. If none of the above examples fit your situation, talk to someone at your bank, at your job or at an investment company. You might also ask people who have made themselves wealthy as they will have good ideas.

4. Finally, your cash surplus must increase each month, by itself. Any savings account will pay you a little interest but check out the stock market’s success over the decades. For example, the US stock market has averaged a positive return of 7-10% over the past 50 years. You simply invest money in the biggest, most successful companies and do nothing else. Ignore the ups and downs and wait for the long-term results.

Take these four action steps and your first million will not be very hard at all!