During these times of turbulence and high inflation, there probably very few subjects more relevant than this one. Yet we sometimes tend to gloss over certain spending/saving habits that have proven successful, time and time again. Let’s talk about a few of them here.
Have a savings plan and stick to it!
Regardless of your source(s) of income, set aside a certain amount or percentage of your income as soon as you start earning, and then immediately invest that money. Thanks to the benefit and leverage of compounded earnings, you will earn more money (over time) on your investments than the total money you contribute out of your paycheck!
- Example #1: If you invest only $1000/year for 30 years, you will contribute $30,000 of your own money. At a conservative 5% annual return rate, this investment will add another $39,761, bringing your grand total to $69,761 over that 30-year period – a 133% increase to your initial investment!
- Example 2#: If you invest most of your money in stocks, you can normally expect more like 8% average return per year, which will bring your total to $122,346 – a 308% return! And you don’t have to be an investment wizard to do this – a simple S&P 500 index fund would be an excellent choice. Most investment companies (e.g., Fidelity Investments, Charles Schwab, Vanguard, etc.) offer this investment staple, and it’s easier than opening a checking account! The key is to choose an institution that has low fund management fees.
I know, many live hand-to-month, and therefore it’s hard to set aside even the slightest amount. I totally get that. One less painful way to save would be to have your employer take the money out of your paycheck and put it into a 401K. That will automate your savings rate, and you’ll never see the money hit your bank account in the first place. I know, that still doesn’t alleviate the hardship of taking home less money. However, this leads to my next point – a penny saved is a penny earned!!
Whenever you shop for anything – large or small – ALWAYS look for the best value. This may sound daunting at first, especially for the many small, everyday things. But it’s really quite simple. Just keep these things in mind, and I just know you will soon find extra money to save and invest without having to sacrifice anything:
- More often than not, it pays to buy consumable items and non-perishable foods in quantity. So, if you’re looking for a bag of rice, always start with the biggest bag. Of course, it will also have the highest price tag, but you’ll be paying less per pound, thereby saving money over time. Warehouse memberships like Costco and Sam’s Club provide high saves most of the time in this area.
- More often than not, grocery store brands (e.g., Kroger, Stater Brothers, Albertsons, Food Lion, etc.) are almost always considerably less expensive than their name brand counterparts. So, unless there is good reason to go with the name brands, buy the store brand. It can shave a good 10%-20% off your total bill, and this really adds up over time. To this point, I have personally found that Costco’s “Kirkland” brand offers exceptional value – very high-quality products at a significantly discounted price.
- For the bigger ticket items, always do your homework and comparison shop first. And be sure to look for the best value, not necessarily the cheapest price. A few years ago, I bought a cheap pair of shoes that looked really good. However, the soles wore out in less than 6 months! Then, I bought a pair midrange in price, and they lasted for more than 2 years!
When deciding whether to buy something, always separate “needs” from “wants”. For instance, most of us need cars for our everyday transportation needs. This doesn’t mean it has to be a Lexus or a Mercedes – maybe a Honda Accord or a Toyota Camry would do just fine in meeting our basic need for safe, reliable and comfortable transportation.
Have a Monthly Family Budget
And finally, to accommodate some of the wants, it always helps to have a monthly family budget. Once you allocate enough money to meet your needs and target monthly savings, then any extra money can be spent on something you would enjoy having but don’t really need, such as a night out to dinner and a movie with that special person, or perhaps a birthday or Christmas gift for a loved one.
In all this, I hope you can see a balance between saving/frugal spending and enjoying the fruits of your labor. The good news is, if you just come close to getting this balance right, I bet you will find it surprisingly easy to achieve both.
Also, in closing, and especially for the younger people out there: This means it’s OK to be somewhat selfish in setting aside money to save/invest in your early and middle earning years. Although it might mean saying “no” at times to someone wanting “help” with something, it will only enable you to be more generous as you get older. Think about it…