If you’ve ever watched re-runs from The Andy Griffith Show, you might remember an episode called “Opie’s Fortune,” in which Opie finds a lost coin purse containing $50. After waiting for the legally required amount of time for the rightful owner to appear, Andy allows Opie to keep the money. Opie, of course, can only think about how he is going to spend his fortune. “When fellows come into a lot of money,” Andy reminds him, “what they usually do is spend some of it and save some of it. You know, save some of it for a rainy day….”
“Okay,” Opie says, “I’ll save a dollar.” Andy gently counters with an alternative suggestion of spending $10 and saving $40.
As always, Andy instills the proper attitude into his son’s upbringing, which, in this case, provides a great example of John Wesley’s second point in his money sermon: Save all you can.
Time to Stop Spending
If you are spending wisely, as discussed in part 1 of this series, you’re well on your way to saving effectively. As Wesley pointed out, saving begins simply with the absence of spending.
You don’t necessarily have to consider all unnecessary spending as frivolous or wasteful, as Wesley did. You should consider it wasteful, however, if you can’t afford your purchases in the first place. Spending more than you have, with credit or through loans, obviously creates debt.
How many credit cards do you have? On which ones are you making monthly payments? Think about how much more you are actually paying in the long run than if you had paid fully for your purchases in the beginning. Credit cards serve a purpose and have some valid uses, but if you continue spending money you don’t have, you might end up financially devastated.
So, when do you stop spending? When you can’t afford it! At that point, it becomes wasteful. Spend only what you can afford. “…almost all the financial problems people have come from spending just a few dollars more than they earn,” notes Dr. James G. Salmons, founder of the Success With Money website, “If you realize that over-spending only a few dollars a month leads to catastrophic debt,” writes Salmons, “while living within your means and saving a little consistently over time can make you rich, you can commit to change more easily.”
Good Debt, Bad Debt
Have you ever heard the term “good debt”? Often this term refers to a debt incurred from an important purchase that will gain value over time. Many people consider a home mortgage, a loan for a small business start-up, or loans for higher education as forms of “good debt.” Sometimes you might have to incur these sorts of debts in order to get where you’re going in life. Even these so-called good debts might not have positive outcomes though. For example, you’d need to consider carefully the probable salary of your chosen career and your ability to pay off any college loans relatively easily, and with any debt, you need to ensure beforehand your ability to make the monthly payments.
David Bach, best-selling author, and founder of FinishRich.com, believes that the idea of good debt and bad debt is now a myth. He writes in his book, Debt Free for Life, that in light of today’s economy,“there’s no such thing as a good debt if you can’t afford to pay it off. When you can’t make the payments, the only difference between ‘good’ debts and ‘bad’ debts is that the bad variety can destroy your financial life much more quickly.” Although we need to be able to borrow money for certain things, he writes, we must have a real plan to pay it off as soon as possible. If we can’t afford to do that, then we’re in real trouble.
Many Americans live under the cloud of debt, and perhaps they perceive it as a necessary part of life. According to NerdWallet Finance, as of August 2014 the average credit card debt of American households stands at $15,480, but, in general, debt isn’t necessary and only hinders your efforts to save money.
Financial experts agree that, in order to start a successful saving plan, you must first get out of debt, but how can you? Financial guru, Dave Ramsey, suggests what he calls the “snowball plan.” Make a list of all your debts, from least to greatest, not counting your home mortgage. Begin with the smallest and pay it off as soon as you can. When you achieve one success, you’ll gain momentum and motivation to keep going, working your way up through your debts.
Bach agrees with Ramsey’s general principles. In his 2012 interview on the NBC Today Show, he emphasized putting any extra money you have into paying off that lowest debt. He also suggested transferring some of your high-interest credit card debt to lower interest cards. Like Ramsey’s system, Bach’s DOLP™ system (“Done On Last Payment”) is designed to help people get out of debt and stay out.
Start Saving ASAP
After giving Opie his $10 for spending, Andy places the remaining $40 into a piggy bank for the future, perhaps for a college education, he suggests. Of course, you probably can’t afford to save four-fifths of your income, especially if you’re paying the bills, but you can follow the general principle: As soon as possible, set aside portions of the money you gain for important future needs.
Once you’ve got spending under control and you’ve begun eliminating your debt, you can start saving, and the sooner the better! The longer your money accumulates, the more you will have available as needs arise. You may be tempted to procrastinate, thinking, I’ll take care of it tomorrow, but one day you will wake up and tomorrow will be here. How much better to prepare financially before it arrives!
Four Places to Start
Experts agree on at least four major areas of saving. You can open separate accounts for each of the following purposes. The first two need to be readily accessible, such as a regular checking or a savings account. The last two require more long-term savings plans—perhaps a little more secure than Opie’s piggy bank! If you lack knowledge about long-term funds, get expert advice or professional financial counseling before investing your money.
1. Emergencies….Your car breaks down. The water pipes burst. Your deep freezer stops working, with a month’s worth of beef inside. You experience extended illness. Your spouse loses his or her job….We like to think that those types of events won’t happen to us, but at some point in life, you will likely encounter an emergency. If you have saved for it, then at least you won’t have to worry about the financial aspect of your situation.
If you do not have an account for emergencies, start this fund right away, with whatever you can, “If you only have five dollars to put into it, do it,” advises Salmons, “Just keep adding a little every payday until it is adequate for your needs.” Most experts suggest accumulating three to six months’ worth of living expenses.
2. Big-ticket items. Aside from emergencies, you’ll need and want to buy the expensive items occasionally—a new car, a better washing machine, an up-to-date computer, or maybe a dream trip to Hawaii. When you get the urge, you might think you can’t wait, or you might think you’ll never be able to buy it outright, so you must use credit. Think again. Change your mind-set about these sorts of purchases. Save for them first. Wait until you can afford it!
3. Retirement. No need to dread your senior years when you can save for the type of life you want. Once you’ve defeated your debt, start saving as soon as you can for maximum benefit. You might choose a Roth IRA, a 401(k), or some other long-term plan. Ramsey suggests investing 15% of your income into retirement, as soon as you are able, while Salmons suggests beginning contributions of $200 or more each month to the fund, “If you do that for 40 years, you will likely retire a millionaire,” Salmons notes.
4. Education. Whether it’s for yourself or for your children, saving ahead of time for higher education and paying up front beats getting a loan. Your goals and individual circumstances determine the best way to save. Do your research. Consider your options. Is college the best way to go? Maybe a more specific education or training suits your goals. Find out the specific requirements for your chosen career. Will the financial sacrifice pay off in the end? As much as possible, save up and pay up front, suggests Salmons.
Rainy Day Savings
Once you’ve accounted for these four future needs, says Salmons, you can move on to other investments that bring in actual income. The world of investing may seem complicated, overwhelming, or even mysterious to some people, but anyone can learn how to do it gradually. Do your research and consult the experts. After you’ve learned the basics, you can branch out. You’ll be adding a means of gaining all you can so you can save all you can…maybe even just for a rainy day!
If you’ve seen “Opie’s Fortune,” you know that, in the end, the rightful owner of the money does appear. ecause Opie makes the right decision to return the money, Andy buys him a gift, providing an example of our third money attitude—generosity. In part 3, read more about the most difficult of Wesley’s points: Give all you can.
Written by Beth Prassel-Sieg
- OTHER PARTS IN THIS SERIES -
MONEY, MONEY, MONEY
Gain All You Can!
MONEY, MONEY, MONEY
Give All You Can!
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