{"id":214,"date":"2023-08-27T05:26:09","date_gmt":"2023-08-27T09:26:09","guid":{"rendered":"https:\/\/pressbooks.bccampus.ca\/financialfreedomfortrades\/?post_type=chapter&p=214"},"modified":"2024-11-19T05:41:17","modified_gmt":"2024-11-19T10:41:17","slug":"strategies-to-increase-savings","status":"publish","type":"chapter","link":"https:\/\/pressbooks.bccampus.ca\/financialfreedomfortrades\/chapter\/strategies-to-increase-savings\/","title":{"raw":"Strategies to Increase Savings","rendered":"Strategies to Increase Savings"},"content":{"raw":"[pb_glossary id=\"242\"]Financial freedom[\/pb_glossary] comes fundamentally with increasing that [pb_glossary id=\"758\"]savings rate[\/pb_glossary] first.\u00a0 Striving for a savings rate of even 50%-70% will allow one to speed up the journey towards financial independence at an exponentially faster pace.\u00a0 Increased savings can be put into a down payment on a [pb_glossary id=\"794\"]principal residence[\/pb_glossary] or into a high-interest savings account.\u00a0 There will also be increased time to allow saved funds to grow and amass an increasing net worth.\u00a0 The power of [pb_glossary id=\"792\"]compound interest[\/pb_glossary] permits investments to multiply in growth at an accelerated rate.\u00a0 Compound interest refers to the interest determined from both the initial principal investment as well as any accumulated interest previously.\r\n\r\n \r\n
\r\n

Example: Compounding Interest<\/strong><\/p>\r\n\r\n<\/header>\r\n

\r\n\r\nJordan makes a one-time investment of $1,000 that earns 10% interest on an annual basis.\u00a0 After year 1, Jordan earns $100 on the investment ($1,000 principal x 10% interest rate), surmounting a balance of $1,100.\u00a0 If that $1,100 stays in the account to make 10% interest in year 2, then Jordan would earn another $110 on the investment ($1,100 x 10%).\u00a0 Year 2 would pay an extra $10 of interest over year 1 due to the effect of compound interest.\u00a0 Extending up to Year 10 shows the multiplying rate of increase in compound interest each year.\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n
Year<\/strong><\/td>\r\nInterest Income<\/strong><\/td>\r\nAccount Balance<\/strong><\/td>\r\n<\/tr>\r\n
Year 0<\/td>\r\n<\/td>\r\n1,000.00<\/td>\r\n<\/tr>\r\n
Year 1<\/td>\r\n100.00<\/td>\r\n1,100.00<\/td>\r\n<\/tr>\r\n
Year 2<\/td>\r\n110.00<\/td>\r\n1,210.00<\/td>\r\n<\/tr>\r\n
Year 3<\/td>\r\n121.00<\/td>\r\n1,331.00<\/td>\r\n<\/tr>\r\n
Year 4<\/td>\r\n133.10<\/td>\r\n1464.10<\/td>\r\n<\/tr>\r\n
Year 5<\/td>\r\n146.41<\/td>\r\n1,610.51<\/td>\r\n<\/tr>\r\n
Year 6<\/td>\r\n161.05<\/td>\r\n1,771.56<\/td>\r\n<\/tr>\r\n
Year 7<\/td>\r\n177.16<\/td>\r\n1,948.72<\/td>\r\n<\/tr>\r\n
Year 8<\/td>\r\n194.87<\/td>\r\n2,143.59<\/td>\r\n<\/tr>\r\n
Year 9<\/td>\r\n214.36<\/td>\r\n2,357.95<\/td>\r\n<\/tr>\r\n
Year 10<\/td>\r\n235.80<\/td>\r\n2,593.75<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n\"Effect<\/a>There would be better compounding growth in the investment the longer Jordan lets the accumulated funds earn interest.\r\n\r\n<\/div>\r\n<\/div>\r\nDedicating as much of your income to savings usually means that an individual would have to decrease the expenditures that are in the \u2018Needs\u2019 and \u2018Wants\u2019 categories.\u00a0 Straightforward cooking at home instead of eating out at restaurants, taking public transport when available, and reducing monthly unutilized subscriptions are all standard ways to budget responsibly.\r\n\r\nIn addition to standard household methods, there\u2019s many means available more specifically to trade workers to increase income or decrease expenses in order to contribute to a higher savings rate goal.\r\n\r\n \r\n\r\nWays to Increase Income<\/span>\r\n