Don't Borrow, Save Your Money for Future Goals or Emergencies
Do you need a new car or appliance? Do you need money for your kids clothes and schooling? Many people borrow money to handle emergencies or to purchase needed items. It costs too much to borrow money for these things. It is much cheaper to start a savings plan to pay for your emergencies and goals.
Before you start a savings plan, you need to decide what your future goals are for your saved money.
Ask yourself
How much money do you need to meet your goals?
How much time do you have to save for these goals?
What interest can you earn on your money while saving?
You can save your money in different places like a regular bank, a savings and loan, or credit union. Before making your final decision on where to save, you need to ask these questions about these places:
What is the cost to open a savings account? Are there service fees or costs in making deposits or withdrawals?
What is the interest rate? This rate will vary from one savings institution to another.
What is the minimum amount you can put into savings? Some institutions require a minimum amount of money to open a savings account.
What is the maturity length? Sometimes you must leave your money in the savings plan for a certain length of time. If your withdraw your money too soon, you may lose interest and/or pay a penalty.
You can start your monthly savings at any amount you wish. The higher the interest rate for your savings account, the more money you will earn. Your money will grow larger over a period of time.
Here is an example of how saving $10 a month can grow over time:
There are a lot of strategies you can use to add more money to your savings. In your monthly spending plan, you can treat your savings just like another bill. Pay your savings account first, before paying your other expenses.
Other tips to help you save are:
Have your employer put your savings directly from your paycheck into your account. This way you will not forget to put the money in your savings and you may not miss the money anyway.
Put all tax refunds, work overtime, gift money, refunds, and raises into your account.
Collect your loose change and as it grows monthly, put it in your account. Get your whole family involved in saving. Have everyone think of some ways to spend less money and put these savings in the bank. For example, by eating out less often by even one meal, you can put that money in the bank.
If you haven't started a savings plan, do not be discouraged. You can start now and watch it grow to meet your financial goals.
I have never met a man or woman who said, “I wish I had more bills. My life would be so much more enjoyable if I had more debt.” However, over the years, I have heard from tens of thousands of readers who are swamped by credit card debt, student loan debt, mortgage debt, and even family debt taken from parents, siblings, aunts, and uncles.
When you borrow money, you are renting someone else’s savings. The problem comes from the fact that you might introduce a liquidity strain if you lose your job, or you might pay higher interest expense, draining your personal net worth as the fruits of your labor go to those who funded your assets and expenditures. It is much easier to save money and come up with cash for investments when you aren’t paying interest to the bank, fees to your credit card company, late penalties to your mortgage holder, and charges bordering on usury to payday lending firms.
Here are some quick guidelines you should consider when managing the liabilities on your family’s personal balance sheet.
Generally, You Should Never Carry a Credit Card Balance
The first month you cannot pay your credit card balance in full, you have a debt problem. Most Americans do not have a problem with credit card debt because 1 out of 2 have none. Credit cards are fine as a matter of convenience and protection against fraud if you are buying over the Internet. I’m extremely fond of my American Express card because it allows me to cash in reward points for gift certificates to my favorite retail stores each year; recently, I’ve redeemed $2,000 at Barnes & Noble for books, $1,000 at Brooks Brothers for custom-made dress shirts, and $600 at Bergdorf Goodman for Brioni ties. The list goes on and has since I was in college; $1,000 at Williams-Sonoma for two new Ruffoni pots, $600 at Neiman Marcus for a bottle of Creed Sublime Vanille, or $3,000 at Tiffany & Company for a few sets of fine China.
Yet, in all of that time, I don’t think I have ever carried a balance at American Express, nor paid them a single penny in interest, even when I was leaving my parents home and had to support myself. If you can’t afford to pay cash, you have no business putting a purchase on a credit card. Period. No exceptions. End of story. You cannot go bankrupt if you don't have debt.
Generally, You Should Not Finance Your Purchase of an Automobile
Pay cash for your car. Your grandparents did it. Their parents did it. Unless you are taking advantage of a rare deal, such as 0% financing on your new vehicle during the recession when car dealers were desperate, it is better to write a check. Even then, it is better to write a check.
If you think that sounds impossible, you have been brainwashed by the consumer debt culture in the United States. By definition, when you buy a car, you have to “save” the entire purchase price plus interest and financing charges. You just send these into the bank in small increments but make no mistake, you ultimately pay the full purchase price. What is the difference between paying yourself first and putting the money in a checking account until you are ready to walk into a dealership? Delayed gratification. It’s about will-power and control. Yet, if you get ahead on your car purchases and begin paying for vehicles upfront, think of all the interest costs you can skip. That is extra cash in your pocket to spend, save, or give to charity. Over the years, the money really adds up as the cumulative effect of wise decisions allows you to retain more dollars for the same goods and services. This creates a virtuous cycle. It is one of the reasons the rich get richer.
Generally, You Should Pay Off Your Mortgage As Soon As You Can
I had a great grandmother that was so against using debts, due in part to emotional scars left over from the aftermath of the Great Depression, she paid cash for a house despite living in one of the poorest zip codes in the country and working in a shoe factory. She spent less than she earned and shoved the remainder in the bank. Over time, she built up enough to move into a nicer place without a mortgage payment. One of my other grandmothers would obsessively mail the bank every extra penny she could find, wiping out a 30-year mortgage in less than 7 years, despite having six children!
This isn’t unique to my family. The Federal Reserve estimates that 1 out of 3 homeowners in the United States has no mortgage against his or her property. Their castle is owned outright, lock, stock, and barrel. They are no better than you are.
You can do it, too. In the end, it is about priorities. Only a few years prior to the recession, many of the people who are now losing their home were cashing equity out of their house, using the property as a reservoir to be drained. When the recession hit, and recessions are as inevitable as the phases of the moon or the coming of the tides, they were wiped out and found themselves in foreclosure.
You don’t have to live that way. If your home isn’t paid off, or if you don't have enough money to wipe out the mortgage immediately, you have no business spending money on luxuries. Take the cash and send it into the bank. It isn’t “your” home until the title deed is in your name, locked in a safe deposit box with no lien attached.
Generally, You Should Not Take Out Student Loan Debt to Attend College
Unless you are studying for a highly lucrative industry that has a very low unemployment rate and generates significantly above-average household income, you need to find a way to pay cash for school. Looking at recent data, it is clear that a significant portion of student loan debt is now due to room and board charges, which have ballooned over the past 50 years as colleges now offer health clubs, swimming pools, air conditioning, high speed Internet, and other amenities. If you need to work your way through college, or it takes five or six years to graduate, but you can do it debt-free, that’s probably the way to go. It is difficult to get ahead if you start out on day one with a degree and interest charges racking up in the background.
In this respect, not all college degrees are created equally. Here is a list of the best paying college degrees. Here is a list of the worst paying college degrees. The earnings prospects are better in the former list compared to the latter. If you find yourself on the list of worst paying career paths, you need to be even more cautious about the money you borrow.
Don’t Buy That It Isn’t Possible to Live With Little or No Debt
If you grew up in a situation where using consumer debt was the norm to fund purchases, it may be difficult for you to understand that this behavior is not healthy or necessary. It essentially puts you in a prison that you, yourself, erect, bar by bar, with each signature on a promissory note or account application. Instead, live below your means early in life and use the surplus cash to buy assets that grow in value or, better yet, throw off more money. Wash. Rinse. Repeat. Over time, compounding can do the rest.
Do you need a new car or appliance? Do you need money for your kids clothes and schooling? Many people borrow money to handle emergencies or to purchase needed items. It costs too much to borrow money for these things. It is much cheaper to start a savings plan to pay for your emergencies and goals.
Before you start a savings plan, you need to decide what your future goals are for your saved money.
Ask yourself
How much money do you need to meet your goals?
How much time do you have to save for these goals?
What interest can you earn on your money while saving?
You can save your money in different places like a regular bank, a savings and loan, or credit union. Before making your final decision on where to save, you need to ask these questions about these places:
What is the cost to open a savings account? Are there service fees or costs in making deposits or withdrawals?
What is the interest rate? This rate will vary from one savings institution to another.
What is the minimum amount you can put into savings? Some institutions require a minimum amount of money to open a savings account.
What is the maturity length? Sometimes you must leave your money in the savings plan for a certain length of time. If your withdraw your money too soon, you may lose interest and/or pay a penalty.
You can start your monthly savings at any amount you wish. The higher the interest rate for your savings account, the more money you will earn. Your money will grow larger over a period of time.
Here is an example of how saving $10 a month can grow over time:
|
Year
|
3% interest
|
7% interest
|
|
1
|
$122
|
$125
|
|
2
|
$247
|
$258
|
|
3
|
$376
|
$402
|
|
4
|
$509
|
$555
|
|
5
|
$646
|
$720
|
|
10
|
$1,397
|
$1,559
|
|
20
|
$3,283
|
$5,240
|
There are a lot of strategies you can use to add more money to your savings. In your monthly spending plan, you can treat your savings just like another bill. Pay your savings account first, before paying your other expenses.
Other tips to help you save are:
Have your employer put your savings directly from your paycheck into your account. This way you will not forget to put the money in your savings and you may not miss the money anyway.
Put all tax refunds, work overtime, gift money, refunds, and raises into your account.
Collect your loose change and as it grows monthly, put it in your account. Get your whole family involved in saving. Have everyone think of some ways to spend less money and put these savings in the bank. For example, by eating out less often by even one meal, you can put that money in the bank.
If you haven't started a savings plan, do not be discouraged. You can start now and watch it grow to meet your financial goals.
I have never met a man or woman who said, “I wish I had more bills. My life would be so much more enjoyable if I had more debt.” However, over the years, I have heard from tens of thousands of readers who are swamped by credit card debt, student loan debt, mortgage debt, and even family debt taken from parents, siblings, aunts, and uncles.
When you borrow money, you are renting someone else’s savings. The problem comes from the fact that you might introduce a liquidity strain if you lose your job, or you might pay higher interest expense, draining your personal net worth as the fruits of your labor go to those who funded your assets and expenditures. It is much easier to save money and come up with cash for investments when you aren’t paying interest to the bank, fees to your credit card company, late penalties to your mortgage holder, and charges bordering on usury to payday lending firms.
Here are some quick guidelines you should consider when managing the liabilities on your family’s personal balance sheet.
Generally, You Should Never Carry a Credit Card Balance
The first month you cannot pay your credit card balance in full, you have a debt problem. Most Americans do not have a problem with credit card debt because 1 out of 2 have none. Credit cards are fine as a matter of convenience and protection against fraud if you are buying over the Internet. I’m extremely fond of my American Express card because it allows me to cash in reward points for gift certificates to my favorite retail stores each year; recently, I’ve redeemed $2,000 at Barnes & Noble for books, $1,000 at Brooks Brothers for custom-made dress shirts, and $600 at Bergdorf Goodman for Brioni ties. The list goes on and has since I was in college; $1,000 at Williams-Sonoma for two new Ruffoni pots, $600 at Neiman Marcus for a bottle of Creed Sublime Vanille, or $3,000 at Tiffany & Company for a few sets of fine China.
Yet, in all of that time, I don’t think I have ever carried a balance at American Express, nor paid them a single penny in interest, even when I was leaving my parents home and had to support myself. If you can’t afford to pay cash, you have no business putting a purchase on a credit card. Period. No exceptions. End of story. You cannot go bankrupt if you don't have debt.
Generally, You Should Not Finance Your Purchase of an Automobile
Pay cash for your car. Your grandparents did it. Their parents did it. Unless you are taking advantage of a rare deal, such as 0% financing on your new vehicle during the recession when car dealers were desperate, it is better to write a check. Even then, it is better to write a check.
If you think that sounds impossible, you have been brainwashed by the consumer debt culture in the United States. By definition, when you buy a car, you have to “save” the entire purchase price plus interest and financing charges. You just send these into the bank in small increments but make no mistake, you ultimately pay the full purchase price. What is the difference between paying yourself first and putting the money in a checking account until you are ready to walk into a dealership? Delayed gratification. It’s about will-power and control. Yet, if you get ahead on your car purchases and begin paying for vehicles upfront, think of all the interest costs you can skip. That is extra cash in your pocket to spend, save, or give to charity. Over the years, the money really adds up as the cumulative effect of wise decisions allows you to retain more dollars for the same goods and services. This creates a virtuous cycle. It is one of the reasons the rich get richer.
Generally, You Should Pay Off Your Mortgage As Soon As You Can
I had a great grandmother that was so against using debts, due in part to emotional scars left over from the aftermath of the Great Depression, she paid cash for a house despite living in one of the poorest zip codes in the country and working in a shoe factory. She spent less than she earned and shoved the remainder in the bank. Over time, she built up enough to move into a nicer place without a mortgage payment. One of my other grandmothers would obsessively mail the bank every extra penny she could find, wiping out a 30-year mortgage in less than 7 years, despite having six children!
This isn’t unique to my family. The Federal Reserve estimates that 1 out of 3 homeowners in the United States has no mortgage against his or her property. Their castle is owned outright, lock, stock, and barrel. They are no better than you are.
You can do it, too. In the end, it is about priorities. Only a few years prior to the recession, many of the people who are now losing their home were cashing equity out of their house, using the property as a reservoir to be drained. When the recession hit, and recessions are as inevitable as the phases of the moon or the coming of the tides, they were wiped out and found themselves in foreclosure.
You don’t have to live that way. If your home isn’t paid off, or if you don't have enough money to wipe out the mortgage immediately, you have no business spending money on luxuries. Take the cash and send it into the bank. It isn’t “your” home until the title deed is in your name, locked in a safe deposit box with no lien attached.
Generally, You Should Not Take Out Student Loan Debt to Attend College
Unless you are studying for a highly lucrative industry that has a very low unemployment rate and generates significantly above-average household income, you need to find a way to pay cash for school. Looking at recent data, it is clear that a significant portion of student loan debt is now due to room and board charges, which have ballooned over the past 50 years as colleges now offer health clubs, swimming pools, air conditioning, high speed Internet, and other amenities. If you need to work your way through college, or it takes five or six years to graduate, but you can do it debt-free, that’s probably the way to go. It is difficult to get ahead if you start out on day one with a degree and interest charges racking up in the background.
In this respect, not all college degrees are created equally. Here is a list of the best paying college degrees. Here is a list of the worst paying college degrees. The earnings prospects are better in the former list compared to the latter. If you find yourself on the list of worst paying career paths, you need to be even more cautious about the money you borrow.
Don’t Buy That It Isn’t Possible to Live With Little or No Debt
If you grew up in a situation where using consumer debt was the norm to fund purchases, it may be difficult for you to understand that this behavior is not healthy or necessary. It essentially puts you in a prison that you, yourself, erect, bar by bar, with each signature on a promissory note or account application. Instead, live below your means early in life and use the surplus cash to buy assets that grow in value or, better yet, throw off more money. Wash. Rinse. Repeat. Over time, compounding can do the rest.
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