How to STOP WASTING Money | How to Save Money Tips

The safe withdrawal rate, also known as the
4% rule, is a rule of thumb that many people use in order to try and get an idea of how
much money they will need to have saved when they retire. It’s a pretty good rule of thumb in my opinion
and I’ve covered it in more depth in previous videos which I’ll link in the description
if you’re interested in finding out more but the basic idea of it is that you need to have
roughly 25 times your annual expenses saved when you retire to have a reasonable expectation
of not running out of money after you leave the workforce. Some people want to be a little more conservative
and use a 3% safe withdrawal rate and if that works better for you because you’re concerned
that the 4% rule isn’t conservative enough then more power to you ultimately it’s just
a rule of thumb to give us an idea of how much money we may need to have in order to
live in retirement. But some people take this concept even further
and use it to not only give them an idea of how much money they’re going to need to save
in order to be financially independent but also as a tool to help them stop wasting money
on recurring expenses. Today we’re going to be talking about what
those people do as we cover the 300x multiplier method. We’re also going to be looking into a similar
strategy that people use to stop wasting money on one time expenses. Hey everyone Daniel here and welcome to Next
Level Life a channel where you can learn about Investing, debt, retirement, and many other
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what topics you’d like me to cover in future videos. So the 300x multiplier method is a way that
people try to help themselves control their spending and figure out what their priorities
really are all while helping to ensure that they are saving enough money to retire either
early or at the normal age. Basically, in a nutshell, the 300 x multiplier
method is where you take a budget you’ve already written, this is usually used in conjunction
with a zero-sum budget but you can make it work with other budgeting methods it’s just
a little messier and more difficult, and analyze all of the categories in terms of a retired
persons lifestyle. Say John takes home $36,000 a year and has
the following budget categories: Rent, Transportation, household expenses,
living essentials, and lifestyle. Transportation includes things like a loan
payment that he may have on his car as well as insurance fuel maintenance and repairs
and other fees such as car tabs parking tolls and anything else that might come up during
the month. Household expenses include your utilities,
internet, cable maybe if he has it, possibly a cell phone and other household materials. Living essentials include the groceries clothing
Personal Care items medications and stuff like that. Lifestyle would include any sort of vacations
entertainment movies gym memberships eating out giving would probably be there among other
things. He writes down what he spends and asks himself,
“Is this item worth saving 300 times what I spend on it so that I’m able to continue
paying for it in retirement?” John can do this with any line item on the
budget whether it’s his rent costs and asking whether it’s worth renting in a place that’s
so expensive or whether he would be happier retiring earlier but in a less expensive place
all the way down to smaller things such as a monthly Netflix subscription. John’s monthly expenses in this hypothetical
example anyway add up to about $2,500 a month. That means that according to the 4% rule he
would need to have at least $750,000 saved by the time he decides to retire in order
to have a reasonable expectation of not running out of money. If we assume that John’s Investments make
on average 8% per year over the Long haul which is right about what the market has done
historically we can get an idea of how long it will take John to not only reach retirement
but how much time each individual item is going to cost him on his journey towards achieving
Financial Independence which may help John figure out what is and what is not worth spending
the money on. Since John is taking home $36,000 a year and
spending $30,000 a year John has $6,000 per year or $500 per month left over to invest
for his retirement. His retirement savings goal is about $750,000
assuming he’s using the 4% rule as his guide. Under these assumptions, it’ll take John a
little over 30 years to reach his retirement savings goal of $750,000. and maybe he’s okay
with that and if so great but if he wanted to speed up his time to reaching retirement
he could do it by looking at each of the line items in his budget and figuring out which
of them survived the 300x test. For an example on a small scale take a look
at his Netflix subscription which cost him $10 a month or $120 a year to keep. $120 a year * 25 to figure out how much John
would need to save in order to cover this expense in retirement brings us to $3,000. So if John canceled his Netflix subscription
in retirement he would lower his retirement savings goal from $750,000 to $747,000. Looking back at this chart from the 30th year
of John’s journey to financial Independence we see that $747,000 is not going to save
him that much time as a matter of fact due to how the compounding works it’s going to
save him less than a month since he jumped from $744,000 in November of that year to
$750,000 in December. So in this particular example, John’s Netflix
subscription probably isn’t something he’s likely to cancel because it’s just not going
to cost him much more time to save enough to keep it. However, this can change if he had a bunch
of small expenses similar to Netflix that when put together could add up to a big amount. Maybe at that point, he would want to change
his buying habits and maybe cancel a few subscriptions but that’s not the case here so he moves on
to another line item. In this case, it’s his car loan which is costing
him roughly $500 a month. $500 a month is $6,000 a year and to cover
a $6,000 a year expense in retirement following the 4% rule you would need to save $150,000. Meaning that if John could find another solution
to his Transportation situation or just pay off the debt before he retires he would lower
his retirement savings goal from $750,000 to $600,000. That’s a 20% reduction in his total goal! And in our hypothetical example, John broke
the $600,000 mark in his Investments in 27 years in 6 months meaning that paying off
the car loan would save him two and a half years worth of savings for retirement. Or give him more wiggle room in retirement
if you still decided to work and save for the full 30 years. So that’s basically the gist of this budgeting
trick. but I can hear some of you already saying
I’m not going to cut out all of my expenses only to live a life of boredom or destitution
and my reply is good for you neither do I. this trick is not meant to stop you from spending
any money ever or deny yourself all forms of Joy from spending it’s just to help you
frame up future purchases a little bit differently so that you can be aware of the true cost
of an item or service. Small purchases can add up quickly especially
if there’s a bunch of them and large purchases or debts can really slow down your journey
to reaching Financial Independence, that doesn’t mean that no small or large purchase is worth
making some of them are but we want to make sure we’re always at least consider it what
we’re doing before we do it. Ultimately all of this trick is trying to
do is stop you from experiencing buyer’s remorse and in my experience anyway, it does help. So before making your next purchase or signing
that next loan or joining that next subscription service take a few seconds to figure out how
much this new item will cost you per year multiply that by 25 and ask yourself if you’re
willing to save that much money just to support whatever it is you’re buying. If you are then, by all means, go forward
with it but if not then don’t let yourself experience buyer’s remorse. Now, one thing that you may have noticed with
the 300x trick is that while it may work well when it comes to recurring expenses like housing,
debt, subscriptions and things of that sort it doesn’t quite have the same impact on
one-time expenses. For example, let’s say that Henry was thinking
about buying a new laptop that costs about $400. A laptop is not a recurring expense, it doesn’t
cost him $400 a month or even $400 a year unless he was really into computers and bought
new ones that frequently. For most of us, a laptop is more of a one-time
thing. We use it until it stops working and then
we get a new computer. But since we don’t know exactly how long
that computer will last us it is more difficult to figure out the effect of the purchase using
the 300x method. So what can we do to help ensure that we don’t
experience buyers remorse in this situation? We can look at these one time purchases through
the lens of how many hours we would have to work in order to pay for whatever it is that
we’re considering buying. Let’s say that Henry makes $15 an hour or
$31,200 a year. That laptop would cost him almost 27 hours
of work to pay for, assuming we don’t take taxes into consideration. If we did Henry would likely be looking at
roughly an entire working week to pay for that laptop. Once taxes are taken into consideration Henry
could be spending anywhere from 1.5% to 2% of his entire after-tax income on a laptop
which he may be okay with, and that’s fine, again just like the 300x trick looking at
purchases through this lens isn’t meant to make us regret every purchase we’ve ever
made or stop any future purchases we may make. It is merely meant to get us to take a few
seconds and consider our purchases more carefully so that we don’t fall victim to buyers remorse. It’s just meant to help us figure out what
we consider to be truly worth the money and what we may not consider to be worth the money
so that we can stop wasting it. But that’ll do it for me today once again
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36 thoughts on “How to STOP WASTING Money | How to Save Money Tips

  1. How can you account for inflation of prices when using this method? I don’t expect a Netflix subscription to cost the same amount in 20 years as it does now.

  2. Surely you wouldn't want to go into retirement with any sort of debt. I'm aiming to retire with a fully paid for house, newish car and 25 times my annual expenses – in fact I'm living a scorched earth lifestyle so I can do this by the end of this year!!

  3. I think it needs to be clear that this is talking about retiring young. If you work to 65 and have 75k, you could take out more than 4% and the money would still outlive you. I have no intention of working till that age but I have a works pension that kicks in at 60 and another at 67 so I really only have to worry about covering until then and having a little bit extra when the work ones kick in.

  4. Great video, Daniel! I need to show this to my husband. He goes along with my frugal ways but I don’t think I have ever been able to give him a good mathematical basis explaining specifically how cutting monthly expenses can impact you long term.

  5. 750000$ in next 30 years would be like 200000$ in current market, will not be enough to cover basic expenses.. one must always increase retirement contributions by 10% every year atleast.

  6. Doing the math at 25% taxes on his income, he only brings home about $27,000. there is no way he has a monthly expenses of $2,500. That's $30,000 a year. He is already broke.

  7. Manage your money very well so you will not get broke when you retire. Lack of money can easily end both relationships and happiness. So, stop wasting your money and start saving it!

  8. Ewww renting. Single, female, renters are the most valuable and poorest and a pay check away from homelessness in my country. Rent is very high. And we have no savings because of years out of work with child care

  9. I got a video idea. A video that gives advice to us young adults on how to start off fresh financially, such as a recent high school graduate. I can see this video idea helping those to prevent making bad decisions. Thank you.

  10. Hi Daniel. I am an avid consumer of your contents. Thank you for all the good info! I haven't yet come across the topic of how you actually withdraw your money once you are IF/retired. What strategies we can employ to ensure our money never runs out? I don't mean the 4/3/2% rule (the info of which is in abundance on the net) but the actual mechanics- how you safely release your yearly income from your investments and still enjoy the rest of your money to mature in the investments?

  11. It looks like you didn't adjust the investment numbers to account for the money saved in the Netflix and car examples that would be available to invest. An extra $6000/year to invest would have doubled this person's wealth accumulation rate AND reduced the total goal by $150,000… so that'd cut the time by more than half.

    There's a reason that frugal people don't seriously consider buying new cars, paying 1-2 car payments for life.

  12. Buy rental properties instead of stocks and pay off the mortage mortgage with ren and gain equity before your retirement and create permanent cash flow…

  13. The problem isn't one item that you buy per month, but the compounding of items that lead to hundreds of dollars in the trash.

  14. look at the stories of boomers wasting money then complaining they have no money to retire
    basically, how do we learn from their spending spree, how does Gen Y/z NOT be a boomer?

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