Our last post about how to save money articulates that consumers wants are insatiable.  Further, knowing that resources are limited, you must allocate them appropriately.  The real point here is about recognition, or “knowing” that consumers have insatiable wants and immediately applying that to yourself, because you too are a consumer… someone who buys things.

Much of the secret to financial success centers around psychology (coupled with methodology).  It’s precisely the same for weight-loss or anything else that requires personal discipline.  By learning and applying key distinctions, you can experience success you never thought possible.  One of the distinctions to be made for young investors, is that you simply have to begin.  The philosophy is best understood by a brief couplet attributed to Goethe (with help from the Scottish mountaineer W.H. Murray).

“Until one is committed, there is hesitancy, the chance to draw back. Concerning all acts of initiative (and creation), there is one elementary truth, the ignorance of which kills countless ideas and splendid plans: that the moment one definitely commits oneself, then Providence moves too. All sorts of things occur to help one that would never otherwise have occurred. A whole stream of events issues from the decision, raising in one’s favor all manner of unforeseen incidents and meetings and material assistance, which no man could have dreamed would have come his way. Whatever you can do, or dream you can do, begin it. Boldness has genius, power, and magic in it. Begin it now.”  -J.W. Goethe (attributed)

Begin Saving Now

To distill this down to a single action- simply, start saving NOW.  It’s no secret why street performers around the world put an amount of money in their hat prior to collecting for their performance.  They do so because like attracts like.  For the investor, add to this the concept of developing personal discipline and you’ve now got two strong principles working in your favor.  If you set aside 10% of your income when you’re making $30k per year, the habit will be with you when you’re making $180k per year and even longer as your income (and wage inflation) grows.  This gives you 90% of your income to spend on living expenses and other necessities and the remainder being set aside for your future… always growing both from wise investment and current addition.  The psychological benefit of this is incredibly compelling and the prosperity benefits are very real and calculable.

You may be saying “I can’t get by on 90% of my income!”  Chances are if you’ve been getting by on 100% and haven’t over-extended yourself that you really can get by on less.  It’s a matter of separating needs versus wants and desires. We get in life what we want most.  If your goal is to get ahead and have prosperity, the difference between needs, wants and desires will become incredibly clear to you.

I would further advise that whatever amount you save, be it 10% or more… of that amount, where possible, apportion 80%  to your 401k plan or IRA and the remaining 20% to a taxable investing account.  The ERISA rules surrounding retirement plans make it difficult to withdraw these funds in the event of an emergency, so the taxable savings are meant to be relatively easier to access.

What is your savings goal? Retirement? A vacation home? Do you have a plan to get there?