Question How do you save money?
Answer If you spend less money than you take home, live below your means, you will have money to save.
Complete Answer There are many ways to save money, every thing from putting your spare change in a piggy bank each day to money automatically deducted from your pay and put into diversified investments. Do what ever works for you. The important things to remember are:
- Start right now! Albert Einstein said, “Compound interest (earning interest on interest) is the eighth wonder of the world. He who understands it, earns it . . . he who doesn’t . . . pays it”9. For example Adam and Alice agree to save $10,000.00 each for retirement which is 30 years away. Alice started right now by investing her $10,000.00. It took Adam ten years to save the $10,000.00 to invest in his retirement. Even though both invested $10,000.00 for retirement, in 30 years, Alice will have $24,568.42. Adam, because he waited ten years to invest his money, will have $18,207.55. They both saved $10,000.00 for retirement. But because Alice was earning interest on interest (compounding) she will have $6,360.87 more than Adam. For this example the interest rate is 3% compounded monthly.
- Make savings a priority. The first thing in my Spending Plan is savings. Each month I begin by saving 10% of my take-home pay. That financial literacy concept is called “Paying Yourself First”.
- Make it easy. If a task is inconvenient or cumbersome, it’s easy to put off or skip it altogether. Have part of your pay directly deposited to a savings account, have money automatically transferred from checking to savings each month, round up purchases to the next even dollar and then leave that amount in your checking account, or putting your spare change in a piggy bank at the end of each day are just a few ways to save money.
Misconception A common misconception about saving is some people believe or are led to believe that buying something on sale is saving money. Some people go so far as to believe that buying something on sale is actually investing money. Both concepts are incorrect. When you buy something on sale, you are simply spending less money.
Financial Literacy Knowledge/Skill
Saving money begins with living below your means, make it a priority, make it easy to do, and begin saving now.
Comments or Questions
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Next week’s topic: How much money should you be saving?