Wednesday, March 11, 2009

The Best Time To Save Is When You're Young


Tip #88 - The Best Time To Save Is When You're Young. Being in my early 40's with three children, I tend to focus on what to do to save money at my stage of life. However, the best time to start good saving habits is when you are young when you first graduate college. Of course, actually learning good savings and spending habits start earlier. But we'll discuss young graduates with their first jobs out of school.

Being that it wasn't sooo long ago that I was a new college graduate, I've been trying to recall things that I did to start my savings early.

--Keep your living costs low. If you cannot live with mom and dad, then get roommates. Nothing will cut your biggest expenses more than sharing rent and utilities with friends. A three-bedroom apartment split three ways is often cheaper than a two-bedroom apartment split two ways.

--Cut down on bad social habits. Drinking alcohol costs a lot of money. Besides not being good for you (and I won't get into that here), drinking is a very expensive habit, especially if you are drinking in bars or restaurants. Smoking cigarettes is a no-no, too. Again, health risks aside, it is very costly to be a smoker.

--Learn to cook. When you are young it's very easy to get into the habit of going out to eat all of the time or ordering in. And I see nothing wrong with that on a limited basis. But learning to cook is a skill that will pay for itself over and over again, even if you need to take a basic cooking class. And along those lines, bring your lunch to work, at least a few days per week. Lunches out add up quickly.

--Buy a used car that works well. Just because you have a new job doesn't mean you need a new, fancy car. If you are trying to impress someone of the opposite sex, then you are setting yourself up for a lifetime of buying gifts or buying the best to keep another person happy. If you meet someone with a used car, then at least you know the person likes you and not your car. If you are in a city, don't buy a car at all, take public transportation to work.

--Take advantage of discounts at your work or your apartment complex. Many apartment complexes geared to young people have workout rooms, swimming pools, and tennis courts. If these are activities you like, then take advantage of them where you live - no need to join a gym or pay for a swim club. Some workplaces offer a gym as well or a discount to join one. Take advantage of it.

--Start contributing to your retirement at work. If your work offers a 401(k) or a 403(b), start putting money into it the day you become eligible. At the very minimum, put in up to the company match. Ideally, put the maximum allowed into it. Yes, retirement seems like a very long time away. But think about how fast four years of college went. Trust me, time will go fast. You might as well be saving all along the way rather than wake up one day when you are 40 with a mortgage, a couple of kids and nothing saved for retirement. The money comes out of your paycheck before you see it. You will not miss it - I promise.

--If you can spare additional money, open up a Roth IRA. This is also for retirement. Again, when you are older you won't regret doing this. In fact the old you will thank the young you for not squandering this extra money. Remember, the earlier you save, the less you need to save.

--Use your credit cards wisely. That is, pay them off each month. If you cannot afford something, do not buy it. Period. A credit card is an advance for 30 days and that is it. It's helpful to have because you don't have to carry large sums of cash. It may give you insurance on some of your purchases and even some rewards. It is not there as unlimited money for you. You still need to pay for what you spend on it. Don't spend on it more than you can afford when the bill is due.

--Take advantage of free or low-cost activities. If you moved to a big city after college for a job, then take advantage of the city. Cities are filled with museums, concerts, shows, parks, libraries, bookstores, and cafes. Many activities are free or low-cost and if you work downtown you are already there so there is no additional transportation cost. Have fun with them while you are still free from other responsibilities - like coming home right after work to be with your spouse and family. Plus you never know how long you will live and/or work in the city.

--Get an education. If your work pays for you to take classes in your field, then go for it. Again, it is much easier to do now than when you are laden with responsibilities of a spouse and children.

--Above all, live below your means. If you make $30,000, then try to live on $20,000. You don't need to spend all of your money. Save some for retirement, an emergency, and maybe a vacation or car down the road. Start yourself on good saving/spending habits. They will stick with you for life.

In Real Life (IRL) - When I graduated college, I moved to a new city (Washington, DC) with a friend of mine. I have always loved travel and wanted to live somewhere new. After a month, my friend moved back home and got married. I stayed and met up with some other friends from college and we got an apartment together. There were three of us in a 3-bedroom place. My apartment rent was under $300 for my portion. Utilities were split three ways, and it was fun having friends around.

Because I worked in the city and lived in the suburbs, I would have had hefty commuting costs. But I was fortunate because our housing complex offered a bus that would take us to the Metro (subway) in the morning for free. The bus's route was that it went to a downtown apartment complex after the Metro. So the bus driver actually drove us there and dropped us off. It was about 10-15 blocks from my office, so I walked the rest of the way. Sure it took me longer, but I had no morning commuting costs! In the afternoon, I took the metro and a bus home. While I did have a car, I had very little gas expenses for the 9 years that I worked downtown.

I took advantage of working in a great city - I have visited the Smithsonian dozens and dozens of times after work or during lunch. I have seen the inside of the White House and the Capitol, I have eaten lunch in front of the cherry blossoms and played softball in the shadow of the Washington Monument. I am 41 now with three children. Those are things I won't be doing again on a regular basis.

I started my 401(k) as soon as I became eligible and an IRA soon after. I now look back and am so thankful that I had wise advisers to tell me to do so. I already have a hefty retirement account built up that I can pull back on savings now if I need to.

I never had credit card debt - ever. If I couldn't afford something I didn't buy it. These were habits I learned from my parents when I was young. But I did not go crazy when I got my first job and had real money. Honestly, the thought never crossed my mind to spend money I didn't have. I still went out with friends and had fun, but it was always within my means.

I never took up smoking or drinking (other than the occasional beer or glass of wine). Again, those were habits I probably learned from my parents. Neither of them smokes and my mom doesn't drink at all. My dad has a beer or a mixed drink probably a few times a year. I never saw the appeal of either of those habits. And I'm glad.

I will say that I did eat out and go out a fair amount and I wasn't such a great cook - I didn't really start working on that until I got married. But I did it reasonably. I didn't go to fancy restaurants or expensive clubs. That just wasn't me. I did travel out west and to Mexico and other places. But again, I shared expenses with friends which kept costs down.

I went to graduate school on my employer's dime - mostly. This benefit was offered to employees who wanted to further themselves in their field. The yearly limit was low so I only took one class per semester. Five (long) years later, I got my Master's degree. I only had to pay for 2 or 3 classes out of pocket.

In general, I took advantage of things that were offered to me. And looking back, I realize the wisdom of that. I didn't realize how much freedom I had at that point in my life. Staying late after work to go out was no big deal. Going to graduate school and for little cost was easy to do in that stage. Even saving for retirement was pretty simple - I didn't have too many other expenses at that point in my life. Start your good habits early - live within your means and put money away from each paycheck, and you will be rewarded later on in life.

1 comment:

Emma White said...

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