5 Ways Saving Money Changes Your Life
The beginning of the road to financial freedom is all about saving. Tucking away money is the critical first step to building your financial future. But once you start building a sizable nest egg, new opportunities will arise. Here is how your life outlook may change when you have some money in the bank that is invested for the future.
Spending may not seem so attractive. It's not that buying something all of a sudden loses its appeal, but you may find that accumulating wealth can become just as addictive as spending money on stuff. Whether you measure by portfolio value or the income that the assets can generate, a higher value means that you are becoming closer to not needing to work anymore. As a result, you may find that saving is actually more attractive than a new pair of shoes.
You will get a taste of freedom before you are completely free. Being able to accumulate sizable wealth will give you the confidence to weather financial storms. When you have sufficient savings you have the power to walk away from a job you hate and retrain for a new one. Savings also helps you feel less stressed about smaller expenses. It won't upend your life if you encounter a large medical bill, home repair or a car that needs to be replaced. You don't need to wait until you have totally made it to benefit from saving money for the future. And that's good news, because the journey to financial freedom is a long one.
Some things may get cheaper as your assets grow. At many financial firms administrative costs for clients decline when they invest more assets through the company. For example, Vanguard offers funds with smaller expense ratios to those who invest at least a minimum required amount in a specific share class. And as your assets grow, financial firms might also start throwing in cheaper trades, free financial plans and tax preparation software. Working with a financial advisor might also become a better deal when you have more assets to invest. A financial advisor who is paid via a percentage of assets under management might be willing to provide lower fees to clients with more assets.
You can fall into the trap of wanting to work just one more year. You might have started saving money with the goal of being able to retire early, but you may get cold feet once you are within reach of quitting the workforce for good. Not everybody will be nervous, but many people will ponder the repercussions of walking away from a steady paycheck. Concerns about what you are going to do after you don't have to wake up for work or whether you'll have enough money to last into old age might keep you working. But having this choice actually puts you in a fortunate situation, because chances are good that work won't be so bad if you have the financial resources to leave whenever you want to and choose to keep at it.
Prudent investing becomes more important. Pinching pennies is important at the beginning of your savings journey, but later on investing becomes more important. That's why you need to start learning how to invest appropriately when you are young and mistakes won't be as costly. If you value simplicity from the beginning, it will be easier to manage your financial assets. Consider selecting fewer accounts and straightforward investments you understand. The beauty of simple investments is that it frees up time to work on tax optimization and improving your finances, instead of getting tangled in the complexities of various investments.
David Ning is the founder of MoneyNing.com .
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