Saving Habits For Better Finances

To begin with, let’s start with a quote from someone that I forgot: “When unmanaged, expenses always rise to income levels”. I think it’s a very meaningful quote, because it’s quite common to see rich executives spending lavishly, even to the extent that their savings can’t sustain their living expenses for a month. Coming to this, I read a definition of wealth from somewhere that says it’s a measure of how long you can continue your way of life if you stop having income or lose your job. While it’s not the traditional definition in the pure English sense, I do like the way the writer had put the concept of wealth into perspective.

I acknowledge that someone more highly paid can afford more material goods, but I feel that sometimes these material goods turn out to be a liability. Instead of supposingly fulfilling our needs and wants in a society that demands higher standards of living, it seems like the regular upkeep for these goods just serves to drain our finances. Think about it, how many times have we succumbed to the nonsensical desire to purchase something and then chuck it aside. Years later, we might suddenly notice the resurface of this particular material good and think back to the high ticket price we paid for it. This is an example of money not well spent.

Think back to the saying ‘A dollar saved is a dollar earned’. In actual fact, a dollar saved is more than a dollar earned, because savings don’t get taxed. When you earn a dollar, you only get to keep about 60% to 90%, depending on the amount of tax you have to pay. When you save a dollar, the whole dollar is yours. Therefore, a dollar saved is definitely worth much more than a dollar earned. At this point, we have not even factored in the fact that when your dollar is invested, it might be worth much more than a dollar few years later. That’s also one of the key reasons why Warren Buffett lives a fairly frugal lifestyle for his level of income, because he recognizes that there is a higher value to money if you save and invest it. Well… he did get a private jet, but many people say that he’s frugal, so I’ll go with the crowd.

The important lesson over here is the importance of saving and investing. Saving by itself is redundant, because inflation will kill the value of your money. Inflation is basically everything becoming more expensive with time, which means you can buy less stuff with the same amount of money. Therefore, you need to invest to grow your money, instead of letting inflation devalue your money. If you build up your financial literacy and start investing your money, you may be getting annual returns of 8% to 20% per year, which will cover inflation and build your wealth over time. Compounding returns has helped made many millionaires, although it does take time to compound and grow your wealth. The good news is that the earlier you start, the more you end up with.

Investing may seem like a good idea, but all investments start with first having money to invest. Typically, the easiest way to get spare cash for investments is to reduce your expenditure. Asking someone to instantly increase your income might be a tough call for most salaried employees, so asking someone to manage what he/she has might be the way to go. For example, one less cup of Starbucks coffee will help you save $200 per month. Food and entertainment costs take up a significant size of a person’s spending, so you might want to watch that as well. Here’s a list of some good saving habits:

1. Get your daily meals at a less expensive restaurant
2. Coffee is much cheaper at your office’s pantry
3. Sports is a cheap alternative for entertainment and it’s healthy too
4. Never purchase a costly item at first sight. Stop your impulse buys
5. Avoid swiping credit cards. If you have to, audit your spending regularly
6. Set aside a part of your paycheck for saving, commonly 10%

Ultimately, it’s all about personal control and discipline. Always look for ways to save up and invest in financial instruments you are comfortable with. The principle of delayed gratification when investing your money is important, since it is always very easy to stray and demand instant pleasure by splurging on material goods. Think about it… would you still want to struggle to pay off your bills when you are in your 50s and 60s? If your answer is no, what are you waiting for? Start saving and investing… for your future.