From the pump to your future
Planning a financial future and making it happen are two different things. I have often found the best time to start saving money is when money has made itself readily available in one of two ways: First, you start to make more money, in the form of a new job or a promotion. Many people spend those extra dollars before the check even comes in. Some don’t even compensate for the extra taxes that will be taken out, so the $600 a month raise really doesn’t equate to that in spending dollars.
My general recommendation when you find out you will be making more money is to raise your standard of living by half the increase and save the other half. This way it feels like you are making more, yet you are also making sure you have a paycheck in the future.
The second way is when a bill or payment goes away. My clients look forward to their car being paid off. Sometimes you can even see the relief in their persona. Paying off a long term debt is like taking a long-term vacation; your mind is no longer occupied with the thought of, “What if?”
The problem is that often times in our consumer-driven world, we tend to forget how good it feels to not have that payment and we convince ourselves that it is a way of life. So when the man at the dealership tells me I can now afford a $750 payment, instead of a $600 payment, with zero percent interest, I convince myself I would be stupid not to do it, since it’s like free money. The truth is, here is no such thing as free money. That dealership is playing the odds that they know many people will not save up for their next automobile before the purchase and issuing debt is often the only way they can get someone in a new car. I am not blaming them. If I had a dealership, I would probably do it the same way. The key is to have the self discipline to now save the difference, or at least part of it.
Since you might not be in the situation of getting a pay increase or eliminating those pesky payments, I have a recommendation for all of us who live “down valley.” An opportunity has risen for all those that want to save money. No, I am not talking about a pyramid scheme or trying to sell you on a get rich scheme, this is a very practical way.
Our gas prices have just decreased by over 20 cents a gallon, which means for the average person that fills up every week, you just saved about $3 a week, if you have a 15-gallon tank. Now for those of you that have a diesel with a 35-gallon tank, that savings is closer to $7 a week. I personally have taken advantage of City Market’s Value card to fill up and received another 10 cents off. Many people accumulate much higher savings.
So why not set up an automatic transfer from checking to savings of the $5-$10 a week or $25-$50 a month? In reality, it will be no different then what you were spending two months ago. However, for most people, like many of my clients, savings accounts are just an extension of checking accounts and access is granted to the money almost instantly. The farther you can separate the money from instant access, the better.
That is why a financial professional is a good resource. Even though it is still your money, you have to at least make a phone call to access it, and most folks don’t like to do that. So the money and interest accrue and can really become meaningful over time. For instance, saving $50 a month (the new savings on gas) and getting a hypothetical 8 percent interest for 10 years with no expenses would become $9,147. After 20 years, it would be $29,451. This is just by saving the money you were already used to spending.
I know the difficulty that putting your needs ahead of your wants can place on each of us, but I also feel that making that decision is a true test of character. Choose wisely!
Mike Davis is a Rifle-based insurance agent, registered representative and investment advisor with Northwestern Mutual, the marketing name for The Northwestern Mutual Life Insurance Co., Milwaukee, Wis., and its subsidiaries.
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