In our article, ‘Not All Traps Look Like Traps’, we showed you how easy credit use can lead to serious long-term financial consequences. Life can be and should be so different. All it takes is a little discipline and some sound decisions and your long term financial future can look a lot rosier.
You may remember that in the last article we demonstrated how the compound interest effect on money owed can have huge negative impacts on your spending and savings capacity. The reverse also applies. That compound interest factor when applied to prudent savings and investment will, in time, generate more disposable income for you. It does take some sacrifice.
The following scenario is similar to one that many shrewd employees have used to build their savings, grow their independence and increase their discretionary income.
You’ve started your first job and all of a sudden you have more income than you’re used to. The temptation to spend it is high, but you decide that you will try really hard to save $45 per month. It’s not much, but it’s a start and that leaves heaps for you to spend on going out and getting some new clothes, it’s just over $10 a week – you surely can put that much away.
So you start – you open a specified savings account and arrange with your paymaster to direct $22.50 a fortnight from your salary specifically to that account. It’s pretty easy and you figure if it goes straight to that account you won’t miss it. You also make sure that you don’t have card access to that money. It’s a good decision –set and forget.
Of course there are temptations to break your budget. Some of your friends always seem to have the latest devices and gadgets. You’re not sure where they get the money from until one of them tells you they have a credit card. Curious, you ask them how much that costs them a month. They tell you they’re paying a $100 a month.
You spend a little time investigating this and you know that most of the gadgets and stuff your friends have are just gadgets and stuff. They’re nice but not necessary – finally you figure if your friend is finding $100 per month to pay off debt you can find $100 per month to save. Disciplined Savings! It’s a threshold moment – one that you will look back on in years to come.
So you implement some changes and your disciplined savings means you now save $100 per month. Pretty soon you have enough to buy a small parcel of shares.
It’s a great start.
It’s the essential first step to making your money grow. However, to see why it’s just the beginning, please watch out for our next article ‘Why Saving Isn’t Not Enough’.