Saving money in your early years is an easy way to help accumulate wealth over your life time. If you invest $10,000 at 8% annual return when you’re twenty you would have over $240,000 by your sixtieth birthday, without ever adding another dollar. Of course, to get the initial $10,000 will require disciplined saving. Here are some better money savings habits you can develop while you are young.
If you fail to plan, you plan to fail
Having a plan is one of the most important elements of achieving anything, and it definitely applies to saving. For saving, figure out what it is you would like to do in the long term then set some short term spending and saving goals which will enable this to happen. Aim to save a percentage of your income; The level you set is up to you, 10% can be a good start but why not aim higher?
Track to change your spending
You must track your spending if you wish to reduce it, otherwise you will not know what to change. You don’t have to do this for ever, just long enough to get some relevant information, say one month. Once you have your monthly spending habits add on the annual expenses that were not covered during this period, like car registration or new clothes. Using this information, challenge yourself to change the way you spend money to achieve you short term savings goals. It is ok to change slowly in manageable increments, like increasing the amount you save each month by 5%, or decrease eating out by $20 a month.
Save first, spend later
Once you have a plan, and know how much you need to save each week/month, set up automatic bank transfers to save money as soon as you receive it. This can be done simply, by opening a high interest account and setting a periodical payment to this account the day you are paid. Do not spend your income and save whatever you have left at the end of the week; save first and spend whatever you have left. This will ensure you are meeting your savings target.
Don’t let your spending slide with your income
For most people, as their income increases so does their spending, ideally you don’t want this to happen. As your income increases make your savings rate increase instead. If you are already living comfortably before your income goes up, then there isn’t any real reason to spend more. Try to establish sustainable spending habits when you first start working which you can maintain regardless of how much you are earning. By doing so your savings will advance rapidly.
Discipline and planning at an early age will help you establish habits that will be beneficial for your entire life. Even better, it will set you up to be financially secure and wealthy in the long run.