When it comes to building your net worth, no truer words were spoken.  If you have high interest debt, this is especially important to you. 

Unless you rob banks, won the lottery, or were born with a silver spoon, you need investment capital.  And the only way to get that is to save your hard earned dough.  The more you save the, the faster you can build it, and the greater your eventual net worth.  Lets compare 2 extremes.  The extreme saver and the extreme investor.  

The extreme investor, we'll call him Warren Buffett, is especially astute at investing, but not so much as saving money.  He is able to compound his money at 20% (actually did this) for decades.  This high of a return is legendary and only a few people in business history have been able to do it.  He works his regular old $50k job each year and saves 10% of his income, respectable, but not extreme.  Here's how his net worth grows each decade:
Age
20: $0
30: $160,752
40: $1,125,128
50: $7,096,298
60: $44,068,147*
*Note that he made more money in the last 2 years than all of the first 35 years combined, due to the power of compounding.  

Now let's take a mega saver like Crass Cash.  He saves somewhere in the magnitude of 50% of his income instead of 10% like Buffett.  He's not as bright as Buffett, but he's more disciplined and decides to invest all of his money in the stock market in a low cost index fund until his retirement (What age will that be?).  As a result his investments net out at 7.2%, just like the long-term stock market average.  Let's see how his net worth compares over the decades to Buffett:
Age
20: $0
30: $398,797
40: $1,147,549**
50: $2,649,495
60: $5,658,893
**Note that by the time you're 40 you're ahead of a legendary investor, just from savings.  

See the difference between the figures when you're 60?  In order to accumulate massive amounts of money you have to do it with compounding interest.  No amount of saving will help overtake this.  The power of compounding eventually becomes so overwhelming that the super rich can't even spend it fast enough, which is why they become philanthropists.   

A penny saved is a penny earned, but only up to a certain point.  Eventually you will accumulate so much money that the money you save, isn't worth saving given the amount that you now make with your investments.  This is the sweet spot!  You also need to figure in the quality of life scenario.  Buffett has spent 8 hours every day analyzing investments for decades in order to get these extraordinary results, whereas, Crass Cash spends an hour every year checking his investments.  What life would you rather live? 

• Start saving as young as possible. 
• Save as much as possible.
• Invest wisely, so that compound interest will eventually take over. 

-To answer the trivia question, how old Crass Cash is when he's able to retire?  37!

Here's 9 (possibly 11) ways for you to save money depending upon your lifestyle.  

1. Drive an old car or bike to work. One of the biggest expenses for your car is depreciation, not gas.  You just don't notice it because it's not posted on a sign everywhere you go.  $1000
2. Cook at home.  Buy items in bulk that stay for long periods of time, such as rice, oats, pastas.  If you don't eat these things, no worries.  It just means that you're going to have to ride your bike to the store more often.  $600
3. Cancel your cable, but keep your internet.  Your internet will take up plenty of time on it's own, plus lower your internet usage on your phone, thus lowering your phone bill.  $600
4. Take care of your own home.  Fire the maid, cut your own lawn, and do your own maintenance repairs. $1200
5. Exercise as entertainment.  Go for walks, ride your bike, run through the local park.  Exercise is free just ask our ancient relatives. Cancel the gym membership. $300
6. Teach your children to be frugal.  When TV is gone they'll quit asking for meaningless crap as much.  Take this time to institute a child 401k plan and to also teach them about chores for money.  $240
7. Downsize your home. See previous post.  $2400 
8. Make your own coffee.  $624
9. Ask yourself, 'Do I really need this?'.  $1200   
10. Quit smoking!  In addition to saving money on cigarettes it'll also save you another $250 a year on health insurance, since Obamacare takes effect in 2 months.  $2000
11. Do not get drinks when you eat out (neither alcoholic nor virgin).  Restaurants now routinely charge you $2.50 for a Coke and $4 for a beer.  Don't even get me fucking started on the $14 martini!!!  Order water, or nothing at all.  Humans weren't meant to drink when we ate.  I don't know where this started.  $416

Live style choices from 1-9 will save you $8,164.  But if you drink and smoke, then you could save at least an extra $2,416 on top of that.  These figures are very conservative and they're demonstrated to show you how much  money you waste on a yearly basis based upon the mundane stupid crap you buy without even thinking about it.   

Owning your own home has been called the American Dream, but it's gone astray over the past 30 years. Like all things American we have a tendency to over do it.  Whether it be for better or worse (think McMansion).  Prior to the real estate crash it was very common to use your home as a piggy bank that would eventually become your retirement.  As a result Americans leveraged themselves to the hilt with an asset that drained money from their pocket.  As long as prices go up, you continue to make more money each year, and never lose your job, you're fine, but if they don't...well you know the story.

So how did all of this come about?  It revolves around the tax code.  The main culprit is the interest deduction that Uncle Sam allows for you to deduct on your taxes.  This deduction dates back to the beginning of the income tax itself, 1913.  Due to the mortgage interest deduction and the $250,000 primary residence exemption ($500,000 for joint tax returns), the government actually encourages you to borrow as much money as is possible and to buy as big of a house as possible in order to get these benefits.  Due to the standard deduction 2013 you're probably going to need to borrow in excess of $160,000 or in order to get any sort of benefit from it at all.  And that's for the first year of your loan.  The benefit decreases each year as you pay down the debt.  Which causes many people to constantly "trade up" every 5-10 years for a bigger and bigger house.  This has worked out well for some people who downsized and retired on the equity in their home.  But again it requires for everything to work out perfectly. 

Let me now explain why this is a bad idea.  I bought into the whole scenario, as did millions of Americans when I got out of college.  Hell my Forrest Gump professors even told me it was a good idea!  The problem with this whole situation is that it leaves you with much less money to invest in other cash producing assets.  One of the first people that I read who pointed it out is Robert Kyosaki of RICH DAD POOR DAD fame.  I disagreed with him at first, but he's totally right.  On top of this, larger homes cost more money for things that you don't get any sort of benefit from, namely, insurance, maintenance, and HOA dues.  This is the definition of being house poor.  You pay so much for your monthly housing expenses that you have no money to do anything else.  

Real estate is a good investment in general because of the following leveraged reason.  To make the math simple here you go: you buy a $100,000 with a 20% down payment of $20k + $2k in transaction fees. The $22k is your investment.  Even if the property is cash flow negative to the extent that you make nothing on the equity contribution of your mortgage, this still nets you between an 9% return if you assume a meager 2% housing appreciation (2/22 = 9.1%).  As time goes on and compounding inflation kicks in, this rate of return will increase exponentially.  Never buy a piece of real estate that is cash flow negative though!  Relying solely on future appreciation rates is idiotic.  If you buy one that is cash flow positive you should be making 15% on your investment with it rising each year going forward.  That's double what the long term average is for the stock market!       

In order to prevent this, here are two things that you should try to do:
  
1. Buy a house that fits your needs, not the most that the bank will let you buy.  A family of 3 doesn't need a 4,000 square foot house with 4 bedrooms.  They need a 1,500 sq. ft home with 3 bedrooms.  "But what about when friends stay over?" that's what the couch is for.  The smaller the better, but not too small that nobody else would want to buy it. 
2. If you do find yourself with too much house (like I did because of a witch) then rent out some rooms or turn the property into some other form of cash producing property.  Start a business out of the garage or use empty rooms as a storage facility for ca$h.  The whole idea is that you have an asset that is generating income, rather than draining you of cash.