“I just got my tax refund, it’s time to go on vacation!” I can’t tell you how many times I heard this growing up and now I see it daily on social media. I recognized early in life that the way I managed money was very different from most of the people I knew. It has always puzzled me because I never really understood how people could spend money without even thinking twice about saving or retiring. The following are some basic habits you can start now to help ensure your financial security in the future:
1. Saving for retirement as soon as possible is the most beneficial thing you can do. Even if it’s only $ 50 per month, which is the minimum for most plans, you could be preparing with thousands and thousands of dollars when you retire. The sooner the better. For example, a 25-year-old who saves $ 200 a month until age 65 and earns exactly 6% of the funds saved annually would have accumulated about $ 400,000. But a 40-year-old who contributes the same amount each month at the same rate of income you would have accumulated only $ 139,600 at age 65.
2. Never carry a balance on a credit card with an interest rate. This is one of the fastest ways to accumulate an amount of debt that could be a burden for the rest of your life. When you need to use credit and can’t pay the full amount each month, look for a 0% interest card. Many promotions range from six months to a year or more. Used responsibly, they are essentially a free loan. Just make sure you pay the balance in full before the term ends or you’ll end up with retroactive interest that could add hundreds of dollars (if not more) to your obligation.
3. Instead of buying a new car or a lease, try to save and buy a good used car for cash. What you save between interest, depreciation, taxes, license plates, and insurance will save you thousands of dollars. According to Edmunds.com, buying a car that is two years old is your best option because it avoids the biggest drop in depreciation. Owning it for three years and then selling it will also benefit you because you will see another big drop after year five due to the long-term maintenance that is generally required at that point. If you can’t afford a two-year-old car without borrowing, your best bet is to get a slightly older one with long-term maintenance repairs (and low miles if possible).
4. Avoid eating out if you can. The average American eats out 4-5 times a week and spends an average of $ 232 per month or about $ 2,700 per year. If you weren’t eating out for two years, you actually would have saved enough to buy a good used car like point three above.
5. The last, and possibly the most important thing, is to think long term. The worst way to justify the expense is to do it individually against the monthly or annual aggregate. Let’s take the example of eating out – while it may only cost you $ 10 per meal, keep in mind that if you ate it three times a week for a year, you would have spent more than $ 1,400. This same logic can be applied to practically anything: clothing, vacations, furniture, coffee, express shipping, etc. Whenever you are about to spend money, think to yourself, okay, how much this is going to end up costing me each year.
