As a reformed over spender, I now realize the value of having back up savings and being free of consumer debt. Without money set aside, I might be forced to use credit cards in an emergency. Sometimes the personal finance geek inside of me wants to shout the virtues of saving money from the rooftops. Because that isn’t an option (I’m really clumsy), I’ll have to resort to simply sharing savings advice I would give my friends.
Get An Emergency Fund
If saving six to eight months of emergency money sounds impossible, start small. Get an easy access savings account and make it a goal to save $100. Anyone can save $100. Some ways to do this could be to stop smoking, drinking, or gambling, stop getting manicures, don’t go out to eat for a couple of months, take your lunch to work, or cancel your cable. If you can sit down and figure out where all of your money is going, there is probably something you can change to keep more in your pocket. After you have the first $100, aim for $500. Then, increase the amount until you have a number that lets you sleep well at night.
Emergency funds are for emergencies, not because you need a new dress or want to go to a concert. Keep this money readily available for a true emergency like a broken water pipe, car repairs, or doctor bills. If you have to dip into the fund, then replenish it as soon as you can.
Start Paying Off Consumer Debt
After you have some emergency savings, start getting rid of credit card debt or personal loans. One sure way to kill your savings momentum is to spend a large portion of your money on interest payments. Just like you did with the emergency fund, start small. Try paying off the smallest balance first and work up from there.
After you have enough money to get through an emergency and you’ve paid off your consumer debts, start setting aside money for goals like buying a house or making repairs to the house you already own. Your ultimate goal might be to take a trip around the world. By saving up, you won’t be tempted to put it all on credit cards that could take years to pay off.
I would also tell all my friends how important it is to save for retirement. In fact after the emergency fund is established, I would put a portion of my savings into retirement as well as doing the other things mentioned. Enroll in your retirement plan at work, especially if your employer offers a match. Never turn away free money!
If you don’t know how and have no retirement plan at work, there are several low cost brokerages that can help you learn how to set one up, depending on your goals and how much you are able to invest. Hitting retirement age with little or no savings means a pretty meager lifestyle during your golden years.
With the right mindset, anyone can change from spender to saver. It might seem a bit like being deprived at first, but once you start to see those account balances grow. you will wonder why you didn’t start earlier.