Challenging Your Saving Mindset
If you're like most people, the thought of saving money conjures up thoughts of endless budgeting that denies you from enjoying the fruits of your labor now. What if we asked you to challenge your perceptions about saving? Let's dissect some of the most popular theories many people have about saving.
Are you one of the "I could be dead tomorrow so spend today" group? While we don't have a crystal ball to predict your individual lifespan, we do know people are living longer now.
As you can see from the chart, those golden years last a lot longer now and are not so golden if you've got nothing to live on. Not to mention the reality of inflation, which can really wreck havoc with what you're left with.
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Financial Calculators
The value of your savings can be affected by both inflation and taxes. Use this Savings, Taxes and Inflation Calculator to help you determine how much your savings will be worth with these two important variables in mind. Click the "View Report" button to get more information and a year-by-year savings schedule.
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OK, you say, maybe you won't be dead tomorrow, but you need every cent you're making to live your life right now so how can you think about saving for the future? And besides, the amount you can spare is so small it can't possibly amount to anything, can it? Well, we must disagree. Actually, you'd be surprised what regularly saving small amounts can amount to over a period of time.
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Financial Calculators
Consistent investments over a number or years can be an effective strategy to accumulate wealth. Even small additions to your savings add up over time. Use this Savings Calculator to examine how to put this savings strategy to work for you!
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Well, in that case, you're probably thinking, I have plenty of time to start saving and right now this isn't a good time. Again, we must disagree strongly. The sooner the better is always the motto when it comes to saving. A good time to start saving is never later. First of all, you can be sure that something is always going to come up that can prevent you from setting aside money. This is why we advocate the tried and true method of "paying yourself" first.
Figuring out what you can save. How do you decide what amount you can set aside to pay yourself? While initially somewhat cumbersome, the best way to do it is to keep track of all your expenses for two months. Include fixed, usual and out-of-ordinary expenses. If subtracting the expenses from your income leaves you with a positive balance, earmark that amount at minimum for savings. If you are not left with anything after subtracting expenses from income, see if you can trim something from your discretionary expenses and designate that amount for savings.
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Example
Jessie Java stops at the Rev' Me Up Coffee Bar every morning, five days a week, on her way to work. She purchases the largest cup of coffee they sell for $3 and a muffin for $1. While she's at the counter she often impulsively purchases magazines, mints, gum, or scratch-off lottery tickets, depending on her mood. Her morning tab is never less than $5 and on many mornings can be $10.
If Jessie takes $5 of her morning spending money she would have $25 a week and a minimum of $100 a month to save, with relatively little pain on her part. That would amount to $1,200 a year (based on 12 months) without interest or any investment on her part. However, if you told Jessie that she could afford to save $1,200 a year with little change in her lifestyle, chances are she would not think that was possible.
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So first, you need to identify your opportunities for saving. Obviously, surplus money after expenses is a prime candidate. But changes to your discretionary spending may provide additional savings as well.
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Financial Calculators
One of the best ways to increase your savings is to spend less. Even a simple change such as bringing a bagged lunch to work a few times a week can make a difference. Use this Lunch Savings Calculator to illustrate how a little lunch savings can go a long way.
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Second, the longer you wait to start saving, the more it will cost you in a big, big way. A dollar saved today will be worth a lot more in 20 years than a dollar saved a few years down the road.
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Financial Calculators
How interest is calculated can greatly affect your savings. The more often interest is compounded, or added to your account, the more you earn. The Compound Interest Calculator will demonstrate how compounding can affect your savings, and how interest on your interest really adds up!
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There's no time like the present to get going on setting something aside. Remember, no matter how small the amount you can set aside, the sooner you start, the more you can make with that smaller amount due to the marvel of compounding interest. Also, if you're fortunate enough to have some type of employer-matching retirement plan, you'll have even more to show for your savings.
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Tip
While the age and stage you are at in your life will have an effect on the risk factor of your investments, you have to be willing to set aside the money before you can even get to that point. Many people that have the opportunity to have funds matched by their employer don't take advantage of this type of benefit because they will not put even one percent of their paycheck into savings!
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Look at investing and saving as an exciting means of getting the most out of what you earn so that you can accomplish what you want. Whatever spending money you deny yourself won't be so much, and think of what you can achieve by making the most of the investment vehicles that are right for you. Whether it's a savings account, a mutual fund, the stock market, insurance, real estate, or your own business, you can use these vehicles to achieve the goals you set.
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