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Basically, it's really simple. Save by spending less than you make. Then grow what you have saved. But how exactly do you save money? Look around you. There are so many ways so can save. I will share my own examples.
I recently moved. As I prepared to move, I found that I have dvd I don't watch, cd I don't listen to and books I don't read. These things must have cost me thousand of dollars, money totally wasted. I gave most of them to the local libraries. Now I don't buy what I won't use.
I decided to shave my head a few months ago. I didn't originally do it to save money, but money-saving aspect of it has been a pleasant surprise. I had about four haircuts a year. That's about $60 a year in haircut cost. It's a lot more if you add fuel cost. Throw in a car accident while driving to your barber shop and that haircut cost goes up significantly. Now I shave my head once a month in my house. The cost of razor and shaving gel is about $5 a year. I don't need to use shampoo and hair gel anymore, and I use less water when I take a shower. Some of you might think a $55 annual saving is not a big deal, but it is if you look at it percentage wise.
I drive a 15 year-old car. Insurance is cheap. Car thieves don't even go near it. I save a good chunk of money here too.
These are just some of many areas you can save money on. Saving money is a great first step, but the second step -- making it grow is just as important, if not more important. There are many vehicles to make your money grow: running a business, investing in real estate, mutual funds, bonds, and trading stocks, currency, etc. etc. etc.
Pay yourself first means that you set aside 10%-20% of your income for savings first before you do anything else. The KEY is to then live on the 80-90% that is left, not to charge up cards or take out loans to make up for the amount that went into savings. If you are worrying about debt, you are not doing it right. Live within your means, not your credit limits.
I understand the whole thought process of paying yourself first in order to save up for long term, but personally, I've never heard a good reason to not first pay down debt, then pay yourself 100%, especially consdering that paying down debt can save 7+% right off the top.
I'm not referring to charging up charge cards etc, but stand with the idea that primarily you pay down everything with the highest interest rates first, and that includes the mortgage. When paying yourself pays 4% interest (cd rates example), my thought has always been that since you lose 8% on your mortgage, that paying down a mortgage is better then getting 4% interest. (The whole theory gets changed if you can invest and get more then 8% return on your money)
I'd rather sit here with a paid off house, no debts from anything, knowing that I just saved 8% on my mortgage, compounded, for the next 25 years by paying it off early, and know that I can put that monthly mortgage asside for the next 25 years (yes, I paid a 30 year mortgage off in 5 years following this idea) because no matter what type of recession we're in I'm financially stable.
Economic example for an individual who makes $50K a year.
Your scenario states that you put $10K a year asside into a savings account, meaning that at 4.5% interest, in a year you have about $10,450.
My scenario of paying down debt first, I put that $10K a year onto the mortgage, meaning that I just saved 8% interest, or in a year, I have saved $10,800, and I just freed up $10,000 worth of liability, raised my credit score (lowering future borrowing costs) and saved an extra $250.
Compound this scenario with the fact that the dollar is falling, inflation, and the Future value of money is less then today, and you've actually saved a lot less then I've saved, especially considering that your paying interest, (and of course collecting interest) on compounded money.
Its the interest that is killing everyone, and compound it, the idea is to put as little money out and save the most money, which has me scratching my head wondering why the financial advisers do not suggest to pay off debt asap. I understand the whole idea in "paying one first" but never understood why that wouldnt follow paying off the highest interest debt first.
Location: We_tside PNW (Columbia Gorge) / CO / SA TX / Thailand
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Quote:
Originally Posted by npumcrisz
Older cars have cheaper insurances?
My 30 yr old junkers cost $340 / yr for $500K liability and my 10 yr old car cost $400/ yr for same. The last new car I bought was in 1974, so not sure how much they would cost...but I might be inclined to put collision on something worth over $20k , but doubt I'll ever have to worry about that, they don't make 50 mpg grease burners anymore, and I don't want something that burns GAS
Ditto -- save 10% of everything you earn and put money into a Roth IRA every single years. Compound interest is your friend, especially when you are young.
I save 20 % of my income too ,,,, I invested it in Stocks and Gold
but now I want to invest on building and after 2 years I put its benefit in stock , forex , Gold and some other finance market
I understand the whole thought process of paying yourself first in order to save up for long term, but personally, I've never heard a good reason to not first pay down debt, then pay yourself 100%, especially consdering that paying down debt can save 7+% right off the top.
I'm not referring to charging up charge cards etc, but stand with the idea that primarily you pay down everything with the highest interest rates first, and that includes the mortgage. When paying yourself pays 4% interest (cd rates example), my thought has always been that since you lose 8% on your mortgage, that paying down a mortgage is better then getting 4% interest. (The whole theory gets changed if you can invest and get more then 8% return on your money)
I'd rather sit here with a paid off house, no debts from anything, knowing that I just saved 8% on my mortgage, compounded, for the next 25 years by paying it off early, and know that I can put that monthly mortgage asside for the next 25 years (yes, I paid a 30 year mortgage off in 5 years following this idea) because no matter what type of recession we're in I'm financially stable.
Economic example for an individual who makes $50K a year.
Your scenario states that you put $10K a year asside into a savings account, meaning that at 4.5% interest, in a year you have about $10,450.
My scenario of paying down debt first, I put that $10K a year onto the mortgage, meaning that I just saved 8% interest, or in a year, I have saved $10,800, and I just freed up $10,000 worth of liability, raised my credit score (lowering future borrowing costs) and saved an extra $250.
Compound this scenario with the fact that the dollar is falling, inflation, and the Future value of money is less then today, and you've actually saved a lot less then I've saved, especially considering that your paying interest, (and of course collecting interest) on compounded money.
Its the interest that is killing everyone, and compound it, the idea is to put as little money out and save the most money, which has me scratching my head wondering why the financial advisers do not suggest to pay off debt asap. I understand the whole idea in "paying one first" but never understood why that wouldnt follow paying off the highest interest debt first.
I see your point and I agree that paying down debt is always a good idea. I think the pay yourself first idea came about because people will always find a reason/excuse not to save. I couldnt put away that $200 this week because Johnny needed new shoes or the car needed new tires etc, etc. Its a financial philosophy that if done to a fault will result in financial security later in life. Also it assumes that you have enough financial savvy to invest for the long term in a combination of stocks, bonds, commodities and real estate; not put it in a money market. Paying down debt is one of the smartest investments in your financial future you can make. I also like to pay cash whenever possible. If you cant pay cash every time then try to pay cash for depreciating assets such as a car, toys, clothes etc etc and take out a loan for appreciating assets such as real estate. If you have a 6% mortgage on a house and that house over time is averaging a 6%/year appreciation- it is less of a drain on your financial future than a car that loses 10%/year.
Spending less than you make is definitely a good idea until your fixed expenses for mortgage, college loans, commuting fuel, food and electricity all inflate faster than your income. Eventually the fixed expenses will exceed your income. You can move to a better paying job (good luck finding one in this economy) but you will then loose, in most cases, your pension and likely any health insurance.
If I were to give a recent high school graduate advice, I would suggest they study law and finance in either order and plan on working for the Federal government for their entire career. This would be most secure. If they wanted to take risks they should work for the financial industry in a position that will make a salary and allow insider trading for the goodies. Most big fortunes have started with something illegal involving fraud or drug running anyway.
I have already mentioned marry rich and/or win the mega lottery.
I am very glad I am near the end of my “working” career and have a good defined benefit pension and decent health insurance for the rest of my life. I would not want to start a career in this economy unless I had a huge fortune that I was willing to turn into a small fortune. I would definitely not want to start with only a high school diploma and no chance for college. No wonder so many kids are involved with illegal drugs
I know many people who have started with the Federal Government and worked their way up to management or highly specialized technical positions.
Right now I would advise anyone to start up the ladder, get an education along the way, work hard and try any opportunities given.
I started as a GS4 and worked myself up to a GS12. Never had to manager anyone and did a variety of jobs, mostly very interesting. I took a leave of 5 years and came back as a GS5 (less stress) and now am a GS6 and haev opportunties for more advancement if I wanted to stay.
The benefits are great and the tradeoff of less chance for great income comes with much more family life.
I see your point and I agree that paying down debt is always a good idea. I think the pay yourself first idea came about because people will always find a reason/excuse not to save. I couldnt put away that $200 this week because Johnny needed new shoes or the car needed new tires etc, etc. Its a financial philosophy that if done to a fault will result in financial security later in life. Also it assumes that you have enough financial savvy to invest for the long term in a combination of stocks, bonds, commodities and real estate; not put it in a money market. Paying down debt is one of the smartest investments in your financial future you can make. I also like to pay cash whenever possible. If you cant pay cash every time then try to pay cash for depreciating assets such as a car, toys, clothes etc etc and take out a loan for appreciating assets such as real estate. If you have a 6% mortgage on a house and that house over time is averaging a 6%/year appreciation- it is less of a drain on your financial future than a car that loses 10%/year.
Ok, I'm glad to see that I"m not totally wacked.. haha.
I just sit here sometimes, banging my head against the wall when I hear people say,
Wooo hooo, I have $100K saved in the bank, earning 4% interest
Then I ask.. whats your mortgage look like? Well the balance is $100K.. I'm paying 9% interest..(even worse if its interest only)
And I sit here asking myself, what am I missing and why does it not bother people to be losing 5% a year? We all celebrate our 5% pay raise, and then they go and just hand it to the banks. They simply could stop paying that $1,000 monthly payment by paying off the mortgage, and make it up by putting not only the $1,000 asside saved, but also the $1,000 that they were putting in the bank, meaning they would be back up to where they are right now in 4 years, vs paying another 26 years on a mortgage, giving you another 22 years of compounded interest being put in your pocket, rather then the banks.
I understand the whole thought process of paying yourself first in order to save up for long term, but personally, I've never heard a good reason to not first pay down debt, then pay yourself 100%, especially consdering that paying down debt can save 7+% right off the top.
I'm not referring to charging up charge cards etc, but stand with the idea that primarily you pay down everything with the highest interest rates first, and that includes the mortgage. When paying yourself pays 4% interest (cd rates example), my thought has always been that since you lose 8% on your mortgage, that paying down a mortgage is better then getting 4% interest. (The whole theory gets changed if you can invest and get more then 8% return on your money)
I'd rather sit here with a paid off house, no debts from anything, knowing that I just saved 8% on my mortgage, compounded, for the next 25 years by paying it off early, and know that I can put that monthly mortgage asside for the next 25 years (yes, I paid a 30 year mortgage off in 5 years following this idea) because no matter what type of recession we're in I'm financially stable.
Economic example for an individual who makes $50K a year.
Your scenario states that you put $10K a year asside into a savings account, meaning that at 4.5% interest, in a year you have about $10,450.
My scenario of paying down debt first, I put that $10K a year onto the mortgage, meaning that I just saved 8% interest, or in a year, I have saved $10,800, and I just freed up $10,000 worth of liability, raised my credit score (lowering future borrowing costs) and saved an extra $250.
Compound this scenario with the fact that the dollar is falling, inflation, and the Future value of money is less then today, and you've actually saved a lot less then I've saved, especially considering that your paying interest, (and of course collecting interest) on compounded money.
Its the interest that is killing everyone, and compound it, the idea is to put as little money out and save the most money, which has me scratching my head wondering why the financial advisers do not suggest to pay off debt asap. I understand the whole idea in "paying one first" but never understood why that wouldnt follow paying off the highest interest debt first.
I like this post and was also wondering about the pay yourself first.
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, but doubt I'll ever have to worry about that, they don't make 50 mpg grease burners anymore, and I don't want something that burns GAS 
