Prepare your money plan_10

PART III Spending Smart Tomorrow Chapter 7 How to Save Money . . . . . .215 213 From the Library of Wow! eBook This page intentionally left blank From the Library of Wow! eBook Chapter 7 How to Save Money s I talked about in Chapter 2, “First Things First,” goals give you direction and can provide peace of mind. They even have application in daily life. With all the marketing bombarding us every day and fueling our wants, a set of goals helps us to say no. They remind us there’s something we want more than the tempting purchase right in front of us. Even when you have written savings goals, it takes a lot of willpower to consciously stash away money each month. We humans are hardwired to consume immedi-ately. So, saving for future needs and wants goes against our nature. That’s why saving toward goals must be automatic. It could be an automatic 401(k) deduction from your paycheck to fund retirement or an automatic draft from your checking account that adds to your “snorkeling in Bahamas fund.” You put money toward priorities first, and then you’re free to spend what’s left on daily living. In that 215 From the Library of Wow! eBook 216 The 1-2-3 Money Plan way, having goals is freeing. You don’t have to be con-stantly wondering if you’re doing all the right savings things and feeling guilty about indulging in small daily purchases. You might have heard this called “Pay yourself first” because you stash away money for your goals before paying everybody else. It’s also an alternative to a full-fledged household budget. By saving first, you create an artificial environment of money scarcity in the house-hold. It erects boundaries to our spending. Specifically, it cuts down on the cash we have around, so we don’t spend as much. It’s based on the idea that we’ll spend all that’s available to us unless there’s a darned good rea-son not to. This is why increasing your retirement con-tribution is relatively painless. It’s true, you’ll have less money to spend each week, but you unconsciously adjust your spending accordingly. Unless it’s a huge jump in savings, you won’t even notice the difference. Automatic savings leads automatically to lower spending. Erecting these artificial boundaries for money is use-ful. In America, we get very used to abundance and “unlimited.” Do you remember when we used to pay for a certain number of hours each month for Internet access? Now, most Internet access is unlimited. We used to pay by the minute for long-distance phone calls. Today, many calling plans include unlimited long distance. For decades, gasoline seemed unlimited because no matter how much we used, the price was always about $1.25 per gallon. Of course, it only seemed unlimited, From the Library of Wow! eBook How to Save Money 217 as we found out in recent years, as demand grew and prices fluctuated wildly. Diamonds aren’t rare, and aren’t intrinsically valu-able. They only cost a lot because diamond companies restrict the supply and constantly advertise that dia-monds are special. And somehow they became a mandatory element of marriage proposals. Producers of diamonds create an artificial environment of scarcity. You can do the same thing with your household finances. Of course, the big problem with the artificial scarcity plan is the availability of credit. Whether credit cards or a home-equity line of credit, that ability to borrow money easily removes the scarcity boundaries you arti-ficially set up. It makes no sense to pay yourself first and save money earning 3 percent interest but exceed your boundaries by spending on credit cards and pay 18 or 29 percent interest. So, to use the artificial scarcity plan, you must not borrow money for consumer purchases. It’s like being on a diet and throwing away all the cookies and potato chips, creating a scarcity of junk food in the kitchen. The only thing to eat is healthful stuff, so you do. But such a diet plan is doomed if you regularly stop by the convenience store for donuts and Doritos, in effect sidestepping the scarcity boundaries you artificially set up. (In case you got lost with that analogy, credit cards are the convenience-store Doritos.) In the end, paying yourself first is voluntary self-deception, like setting your clock ahead 10 minutes so you won’t be late. If you are committed to the decep-tion, it works great. From the Library of Wow! eBook ... - tailieumienphi.vn