Last week we covered four budgeting basics/concepts – sitting down and listing out our income and expenses, spending less than you take home, making a list when shopping and sticking to it, and spending cash instead of swiping a card.
Today we’re going to talk briefly about saving and borrowing …
Pay your future self first.
This may not be possible to start with, but when there is wiggle room in the budget, make it a point to pay your future self first (aka saving), then pay your expenses last.
The first way to pay your future self – if you don’t already have one, find out what bank pays the highest interest rate (with a low to no minimum starting balance), and open what is known as an HYSA or high yield savings account to start an Emergency Fund (aka rainy day or oh crap fund). This is not money that you withdraw when you charge too much on your credit card or want to treat yo’self or do retail therapy. This is for real emergencies only – flat tires, out-of-pocket insurance deductibles, unexpected medical bills, an unexpected home/car repair, etc.
[I use Ally, which at the time of this post is paying .5% interest vs brick and mortar banks, like BoA or Chase, that pay .01%.]
The other way to pay your future self first is a retirement fund. I’m going to say it now – do NOT count on the government to provide you a pension when you are old enough to qualify. Our Social Security system in this country is on shaky ground. Don’t put yourself in a position to have to work when you’re in your late 60s and beyond. Start saving now and let compound interest do the hard work instead of you. What’s compound interest? Click here …
Saving up and paying in full for something feels so much better than the stress that comes with giving away your hard-earned money for years on end.
Just because we’ve been ingrained to think debt is normal and okay doesn’t mean it really is. Don’t let lifestyle creep take over because your income is increasing – be weird as the guy I’d rather not say the name of would say – and maintain a basic lifestyle with an occasional splurge as your income increases; as mentioned above, pay your future self first. Save up and pay cash for things that financing makes no sense (i.e. smartphones, clothing, tires, and so on). Put larger than normal down payments down on the things that paying in full might not always be possible on when possible (i.e. vehicles and homes).
And … if you do borrow, borrow the least amount necessary.
Don’t charge more than you can pay off on a credit card each month. Don’t borrow more than necessary to attend college – borrow for tuition and living expenses (if necessary) and work part-time to cover the cost of textbooks, meals, and entertainment. Oh, and just because lenders tell you that you qualify for X amount to buy a home, don’t buy that much home! My husband and I qualified for well over double the amount we ended up borrowing — because neither of us wanted that much stress and anxiety in our lives every month, as well as every year seeing the amount we pay increase as property taxes and homeowners insurance climb higher and higher.
