4 Rules for Saving Money

Wealth means how long someone can live forward, with his current lifestyle, without a source of income. For some people, it's not very long. It is good practice to have 3 to 6 months saved up in the bank in case of emergencies. The below rules can help achieve that.

1. Live below your means: If you make a million dollars a year but spend a million dollar a year, you're not wealthier than the person who made 30k and saved 5k.
2. Keep track of every penny spent: Keep track of your spendings to then make an accurate budget. Ideally, you want to save 25% of your monthly income so that you accumulate 1 month of freedom every 4 months.
3. Open a Tax Free Savings Account(TFSA) to invest and/or retirement account: There's nothing wrong with a government to want his share of the money you make but when you use a TFSA for your investments or a retirement account to store money in, the government gives you a little break. This will give you more money during tax season and I would encourage you to save it.
4. Don't finance things that depreciate: It doesn't matter if the item is at 0% interest, it's still not a good idea to buy new due to the depreciation of the item.

We generally want to clear off our debt before starting to save for the simple reason that the interest rate on a debt is higher than the interest rate on money we save. For more information, pick up the book "The Millionaire Next Door" book by Thomas J. Stanley Ph. D. & William D. Danko, Ph. D.

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Revision Wednesday(on a Thursday)
Blog post originally created on February 18, 2015 and can be found here.