Perseverance: Retained earnings- Paying yourself first and growing your money
By: Anthony Liba
Time value of money- a dollar today is worth more than a dollar tomorrow
Saving is hard. Where I see individuals around me struggle financially is living a lifestyle outside their budget, or in other words “living outside your means”. My friends. My co-workers. Family. Everyone. Every dollar you earn should not be considered spendable money within your budget. We need to set limits on how much we spend monthly, quarterly, annually, or whatever time horizon you may choose, so you can save money to work towards that financially healthy future we all strive for.
The first step- open a savings account for a rainy day or what we like to call a Coronavirus fund. 2020 presented an obstacle that no individual on earth had ever seen before- a global pandemic with widespread uncertainty which leads to many businesses closing their doors for a considerable amount of time. This created a variety of issues for businesses and individuals across the globe and resulted in over 3 million Americans filing for unemployment in one week. This was evidence to many of why it’s important to have financial resources available for these situations. According to a survey conducted by
GOBankingRates in 2019, 69% of Americans in the US have less than $1,000 saved in total.
(https://www.gobankingrates.com/saving-money/savings-advice/americans-have-less-than-1000-in-savings/)
If you don’t have your own money saved up, that usually means they have to rely on credit when you get in a pinch. CREDIT! FREE MONEY! Sounds great right? Bad news friends, it is not how it sounds. That free money that you are getting isn’t free. That $20 purchase you made; now will cost you $30 on that credit card you were unable to pay off within 30 days. Don’t fall into this hole. Have a rainy day fund available for such emergencies. Be prepared, don’t let the world prepare you. I do not advocate against having a credit card; however, you should only apply for a credit card if you can pay that balance off each month (discussed further in the Creditworthiness blog).
Don’t be afraid to look at it. As they say in AA meetings, the first step to recovery is admission. Same with overspending, the first step is acknowledging that you are doing it. There are endless apps available to help us track our spending that can automatically link with our debit/credit cards. Reviewing this monthly is a good place to start. A lot of people, between the ages of 18-30, have a bad habit of spending outside of their budget & then not wanting to acknowledge or review that spending because of something like shame or embarrassment. This could turn into a dangerous domino effect of spending and result in not knowing where you stand financially.
Another good way to save is substituting some of your normal expenditures for items that are less expensive. Groundbreaking right?!? But seriously, maybe you take baby steps and don’t start specifically by saying I am going to save xx amount of dollars this month. A better approach could be being more conscious of our spending habits this month by avoiding spending on items that aren’t necessities or figure out where you can find cheaper alternatives. That could mean eating out 2 times a week versus the 4 times you did last week. Or Instead of the $30 steak dinner, eat the $8 chipotle meal. Make a sandwich for lunch, sacrifice your taste buds a couple of days a week (or make better sandwiches), to start building for a more financially stable future. Or pass on buying the $200 sneakers today that you have to have for the night, and instead wait till those bad boys go on sale in 6 months. I am a huge believer in finding discounts on items I want, and if there’s nothing available at the time, wait a few months. Especially for the big-ticket items that you like to splurge on. There are endless areas in life where you can cut costs. You just need to find the right balance.
Now, I must point out that there is an important aspect to in life to take care of yourself, and treating yourself to things that you enjoy. And when I say important, I think this ought to be a priority before anything else. Taking care of yourself contributes to an overall healthy mindset. We all work hard to live a life of enjoyment. I encourage spending on activities that help you build relationships and further your education. Whatever you enjoy, make that a priority. However, we can do this in a more budget-friendly, conscientious way. There has to be a “fine” balance here. For example, a simple productive rule to follow that I learned recently through a financial blog on goes as follows:
For every dollar, you spend on things that we would consider “luxury” items, place the same amount into a savings account. Luxury items could be anything beyond what you consider necessities. You can see that video here:
I side more with the individual in this video talking about not feeling too guilty spending money. I am always looking for the next way to save. Whether that be at the bar with my friends going with the $3 drink instead of the $9 premium drink or buying clothing that is outside of season (buying winter gear in the summer). Instead of saying no I don’t feel like spending money, maybe you say yeah let’s do it but I need to limit myself to xx amount of dollars, and if I go over sometimes so be it. The mindset is what counts because it ingrains the savings ideology in your head.
Whatever saving method it might be that fits your lifestyle, I encourage each person reading this blog to start today. The earlier you ingrain the saving mindset into your lifestyle, the quicker you can expect your nest egg to grow. We all want to be at a point in our life, where we can buy our own house, take care of the family around us, buy that new car without feeling strapped for cash, and invest our money to where the financial market is paying us. Not the opposite way around, as mentioned in the credit card scenario. These are the little things we can do to start building on that financially healthy future. But first, we must get out of the rut of splurging on unnecessary wants, and learn where we can cost save every step of the way. I encourage each of you to start today, to share with your friends, so we can collectively build our wealth.
