Consolidating Debt: Savings Strategies Part II

Really Save

Look at the simple power of compound interest. Compound interest can work for you while you are saving, and it is the surest way to make money with what you already have. It is one of the greatest inventions ever created through capitalism, and it is found in traditional savings accounts. Consider the following scenario:

You have $100 to invest, and so do I. There are many money accounts that give different types of interest and different rates. I put my money in an account with simple interest, because I never bothered to ask what kind of interest is payable on my account. You wisely invest yours in compound interest. The rate is calculated annually.

Time flies, and we never add any more money to our accounts. After 25 years, to the day:

• I have a balance of $175 ($100 + (25 x $3) = $175).
• With compound interest, you have a balance of $209. Every year, your principal kept tacking on to the account balance, and not the original deposit. After one year, your principal was $103, so interest just adds on ad infinitum.
• Change Your Spending Habits
  

Change Your Spending Habits

Now that you can see the dollars (and sense) system of compound interest, you have to work the system. Saving on a regular basis makes for the best advice: “A penny earned is a dollar made.” Of course, saving is easier said done. Love to have it but hate to do it, right?

If you make $4,000 per month, you should be able to save at least $400, or about 10% of your earnings. Heck, the Japanese were once saving 20% and they crested the world’s wealthiest nation out of it. To start saving well today:

• Get a list of weekly expenditures by everyone in your family.
• Write down all expected income for the next three months.
• After comparing all expenses and income, set a minimum amount of money that you hope to save for the next three months.
• After three months, evaluate how well you met your savings goals, and be honest about how difficult or easy it was. Revise your quarterly savings plan according to how easily you met your goal.
• Do quarterly revisions as necessary. At the end of four quarters, compose a family contract that sets an annual savings goal based on the previous year.

In other words, I suggest that people develop their specific discipline for savings over a year. If you can do that, you will have developed the serious capacity to be a competitive saver with a long-term savings goal. No matter what practice, practice, and practice saving. And stop comparing yourself to others, because everyone has their own way of eliminating (or showing off) their debt.