“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 see it daily on social media. I recognized early in life that the way I managed money was very different from most people I knew. It has always baffled me because I never fully understood how people could spend money without even thinking twice about saving or retiring. Here 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 to do. Even if it’s just $50 per month, which is the minimum for most plans, you could be setting yourself up 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 saved funds annually will have accumulated about $400,000. But a 40-year-old who contributes the same amount each month to the same rate of income 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 in full each month, look for a 0% interest card. Many promotions are from six months to a year or more. If used responsibly, they are essentially a free loan. Just be sure to pay off the balance in full before the term is up 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 leasing it, try to save and buy a good used car for cash. What you save between interest, depreciation, taxes, plates and insurance will save you thousands. According to Edmunds.com, buying a car that is two years old is your best bet because it avoids the biggest depreciation drop. Owning it for three years and then selling it will also benefit you because you will see another big dip after the fifth year due to the long-term maintenance that is usually required at that time. If you can’t afford a two-year-old car without borrowing, then your best bet is to get a slightly older one with long-term maintenance fixes (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 stopped eating out for two years, you would have saved enough to buy a nice used car like #3 above.
5. Last, and possibly most important, is long-term thinking. The worst way to justify the expense is to do it individually against the monthly or annual aggregate. For example, eating out – while it may only cost you $10 per meal, keep in mind that if you did this three times a week for a year, you would have spent more than $1,400. This same logic can be applied to just about anything: clothes, vacations, furniture, coffee, fast shipping, etc. Every time you’re about to spend money, think, okay, how much will this cost me each year?