There is a key to make the process of saving money successful when you actually have no money to save. What is it? It is making this your priority. If you do not believe, or realize, that putting these small amounts of money (saved on chocolate bars for example) aside really makes sense, you will quickly give up. You may be surprised how much money you can save even if you think you have too little money. Another important thing is your goal. It is easier to cut down on one thing to receive another – the one you dream of. You may find it terribly hard to swear off your favorite chocolate, but it becomes much less painful when you see yourself buying a new car, house or going on a great trip in your imagination.
It is only $2,50…
Have you heard about the “latte factor”? This is a factor you do not find significant in your process of saving. People treat spending as little as $2,50 for a latte every day as a harmless expense. Although this price really is not high and does not mean much when we buy this latte from time to time, spending this amount of money every work day adds up to a big number. In fact, if you quit this habit, you will have even more than $600 saved in your piggy bank. It concerns the latte situation here, but it can be anything of course – sweets, beer or other “additional” purchases. You must identify your “latte factor” at first. Make a list of all your monthly purchases and check what it is in your case.
What about the compound interest?
All right, these $600 is not so much when it comes to the purchase of a house or possible retirement expenses. However, there is yet another way to make saving a little amount worth much more – it is the compound interest. Look at this exemplary situation: you have $50 of savings every month and you decide to invest it in 401k plan in your firm. Now, depending on your age, you have a certain period of time before your retirement age – here you are right after college so you have more or less 45 years. The average 6 percent interest makes your $50 worth $138,000. You could also systematically increase the initial $50 every year which would give you much more than these $138,000.
If you need something short-term consider a Certificate of Deposit. It can offer the guaranteed interest rates for a period of 3 months to 5 years.
Make it automatic
If you make your saving transfers automatic, the whole process will become much easier. You will not even notice this “deprivation” of money. It is very helpful especially when you tend to buy things on impulse, and these are lots of unnecessary things. Besides, it is just more convenient – you do not need to remember about putting money on your savings account every month- it is done for you.