Save money for the Future
We’ve all heard of the importance of saving for a rainy day. We’re inundated with advertisements on TV, radio, magazines and the internet about the importance of saving for retirement and eliminating debt. While we know the importance of savings, some of us still make a conscious decision to ignore the message and choose instead to adopt a “live for the moment” lifestyle. We make impulse purchases, spend money we don’t have, buy on credit and almost always live well beyond our means. However, there are some who understand the message and adopt its principles. There are those who understand that today never lasts, tomorrow is always around the corner and you’d better be prepared for that worst case scenario. These people consistently save for their retirement, spend within their means, have minimal debt and are always contributing to that much needed emergency fund. While the rest of us purchase everything in sight, and worry about paying for it later, these people use simple and straightforward approaches to save for retirement, control debt and they never spend more than they can afford. What do these people do that some of us just can’t seem to duplicate? More importantly, what habits do these people have that we need to start adopting in our own lives?
Simple Changes Make all the Difference
Surprisingly, saving money isn’t difficult. There’s no complicated formula to saving money or convoluted process. It simply takes the desire to make some simple changes. It’s these little adjustments that allow people to increase their savings over time. It takes the understanding that living on credit is no longer acceptable. It involves re-discovering the value of money and putting an end to those impulse purchases. Finally, it involves putting forth a straightforward plan to save. So, how does one get started?
1. Understand Your Spending Habits
When people look to save money they often ignore the most obvious items they buy day in, day out, week after week, month after month. If you find yourself unable to reconcile how you’ll be able to save, start first by understanding your spending habits during a given week. A great exercise is to track how much you spend and what you spend it on. Ask yourself the following questions.
• How often do you eat out for lunch each week?
• How often does the family eat out for dinner each week?
• How many times do you stop in the morning for that favorite cup of coffee?
• Do you drive alone to work when your neighbor around the corner works in the same area?
• Do you tend to find excuses to spend money?
• How much of what you spend during the week can be avoided?
When someone takes the time to track their spending habits in a week, they often become astonished at just how much money they can save. It’s amazing to think it’s this easy, but in a number of instances it really is. Start by tracking your spending habits and making a conscious decision to cut out all those nonessential purchases. Write down how much you spend and sum up the total. You’ll likely find you’re simply wasting money.
2. Make Savings Easy
Don’t spend an obscene amount of time trying to find ways to save. The first step is to track your spending habits. The second step is to make saving money easy and effortless. The easiest way to save money is to save it automatically, without ever having to think about it. How is this done? Start a periodic payment plan where money will be automatically withdrawn from your account on a weekly, bi-weekly or monthly basis. The easiest way to do this is to have an amount automatically withdrawn every time you get paid. There are a number of investment vehicles that allow you to make periodic deposits over time. It’s often referred to as “paying yourself first”. You only need to set it up once. Every time you get paid and amount will automatically be withdrawn from your paycheck and deposited into an investment of your choice. If need be, start small and work your way up. Over time you won’t even notice it’s gone.
3. Limit Your Ability to Spend
Tracking your spending showed just how much money could be saved. Starting that automatic payment plan got the savings rolling. Now you’ll limit your spending and increase your ability to save. From this point on you’ll pay for everything with cash or with your debit card. You need to stop purchasing on credit, living for the moment and start thinking about your future retirement. Buying everything with cash or debit will force you to only buy what you can afford to pay for now. If you can’t afford it now, don’t buy it. Like many individuals, you may need to learn about the value of money again. Since money rarely changes hands these days, holding it and counting it is the surest way to get back to understanding its value.
4. Choose Investments You Understand
Considered by many to be the most successful investor of this century, Warren Buffett is well known for advocating the most basic approach to investing, “buy what you know”. Whether it’s saving for that rainy day or putting away money for retirement, make sure to understand your investments. If you don’t completely comprehend it, don’t invest in it. Take the time to do your homework. Investigate the pros and cons of the investment and always understand how and why it works. That simple “buy what you know” philosophy has allowed Buffett to consistently outperform most major stock indexes since the 1950’s.
Savings for retirement and emergencies doesn’t have to be a stressful endeavor. However, it does involve the intestinal fortitude to make the right changes. A number of people have become overwhelmed with debt. Given the current economy it’s likely the most important reason for the skyrocketing number of personal bankruptcies. Personal finance doesn’t have to be difficult. It is possible to control one’s spending, reduce debt and most importantly, save for the future.