Wednesday, September 16, 2009

Take Baby Steps

Saving Money Tip #188 - Take Baby Steps To a Better Financial Future. In our quest to become millionaires or at least to get out of debt, it is often the case that we want to reach our goals yesterday. But that is just not possible. Getting out of debt, building up your savings, and learning about finances take time – lots of time. That’s why it’s important to set goals. When you have written goals and a plan, you can be realistic about how long it will take to pay off that $6,000 credit car bill or how long it will take to save $50,000 for a down payment for a house. Since most of us will not win the lottery to help us reach our financial goals, we need to learn how to achieve them slowly.

If you want to cut back your grocery bill by cooking more and eating out less then start out buying some prepared food from the grocery store or frozen meals that are costlier than cooking yourself but cheaper than a restaurant. When you’ve gotten used to eating at home, start trying to cook semi-homemade meals with ingredients that are a mix of convenience foods and basic ingredients. Then try cooking from scratch using just raw ingredients. Then you can look into cooking in bulk and freezing for future meals. You are not going to go from eating out 3 days a week to cooking from scratch in a week’s time. There is a learning curve to learning how to be able to cook your meals from scratch and to stop relying on restaurant meals. Take it slowly.

The same principle applies to saving money. You will not save $10,000 overnight. If you make $40,000 per year, set a goal to save $300 per month. After one year’s time, you will have $3,600 saved. After three years, you will have your $10,000 and then some. Building up your savings account will generally not be quick. Be patient.

If you want to start putting some of your savings in high-earning investments, then it is a good idea to learn about the different types of investments that are available and what its risks are. Investing in a “sure thing” or a “hot” stock is not a good idea unless you have done your research. Learn about the different investment types. Start out by learning why your money may not keep up with inflation if all of it is in a savings account at the bank. Then learn what a mutual fund is and how it can benefit you. Then move on to stocks and what the risks are with investing in them.

You will not become a millionaire overnight. You will not get out of debt overnight. You will not learn how to be a great stock picker overnight. But taking the time and having patience to cut back, learn, and put away money by starting out with baby steps and building up from there will get you where you want to go.

In Real Life (IRL) – I have always been one who looks toward the future. When I was young, if my dad gave me $20, I usually put it away in the bank to spend it sometime in the coming months or years rather than that day. I don’t know what makes me that way. I just am. I know for others it’s not so easy. However, this formula of taking baby steps really does work. I took baby steps building up my savings. I used to save my allowance. Then when I had a job at summer camps, or McDonalds or as office help, I always put away part of my paychecks for the future. When I got my first “real” job out of college, I started putting away a couple of hundred dollars per month toward a mutual fund. It wasn’t much. And I’m sure friends of mine spent the same amount of money on beer, or a car payment, or going out per month. But after 10 years, that little bit of money built up to thousands of dollars – enough to put a substantial down payment on a home in a nice neighborhood. Did I do something special to buy a home in a nice neighborhood? Did I inherit the wealth or suddenly come into money? No, it took years and years of savings to get to the point where I could afford one. As far as buying real estate, it wasn’t until I has bought my own home that I considered looking into buying a home for investment or vacation. I was able to build on what I had learned in the home-buying process that I was willing to take the risk and buy an investment property. Same thing with stocks. I was never comfortable buying stocks on my own, so I joined an investment club where the risks were less and I was able to learn more about stocks over a period of several years. Once I had that experience under my belt, I was comfortable enough to buy on my own.

As far as being able to live frugally, I am learning in that area all the time. Learning how to garden is a great way to cut down on expenses on food. But it takes time to learn that skill. We have started slowly on a home garden in our yard. And each year we’ve been adding to it. I can’t expect to be an experienced farmer overnight but we’re learning.

I know that most of us when we finally put our mind to something we want to make our changes instantly or reach our goals right now. But that is just not feasible. Taking baby steps is really the only way to reach your financial goals – whatever they may be.

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