For many, the path to financial independence begins with saving. No matter if you are a high earner or earning minimum wage, saving is a primary driver of financial independence. The earlier you begin to save, the better your financial outlook.
Start Now
When should you start saving? The answer is an obvious one, NOW! The earlier you start saving, the more time you will have for your savings to compound. If you have not heard the gospel of compounding interest, I will give you an introduction.
Compound interest is interest calculated on the initial principal and the accumulated interest of previous periods. As such, this is a cycle of earning “interest on interest.” Compound interest will make a deposit grow at a faster rate than simple interest, which is interest calculated only on the principal amount. As such, the earlier you begin, the longer your savings + interest compounds, the harder your money works for you.
Automate
This easiest way to ensure a consistent savings rate is to automate your savings. The typical employee receives a paycheck twice per month. Start saving slowly at a rate that is acceptable for you, and increase the amount over time. Further, have a portion of one or both of your paycheck automatically deposited to a savings account. By automating your savings, you never see the money. Additionally, to save takes no action on your part once automation is in place. But where should you save your money?
High Yield Saving
All saving accounts are not created equal. The average interest rate is 0.09% APY. Banks such as Bank of America has an interest rate of 0.03%. On the other hand, online banks pay a significantly higher interest rate. For example, online banks Marcus and Ally offers 2.0% APY and 1.90% APY, respectively. As you can see, having a high yield online bank account is the way to go when saving for financial independence. The higher the interest rate, the faster your savings will grow.
While saving is an important part of the journey to financial independence, unless you are a very high earner, saving alone will not get you to financial independence. Saving is a tool to be used in combination with other methods discussed here. Save, invest and grow.
Conclusion
For many, the path to financial independence begins with saving. No matter if you are a high earner or earning minimum wage, the earlier you begin to save, the better your financial outlook. Journey to financial independence today.
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