Transitioning From Spender To Saver - You Can Do It!

Saving money is downright BORING. Where’s the glitz and glamor in transferring an automatic, $25 deposit each week into a high-yield savings account? I bet nothing gets your adrenaline pumping more than dumping a pocket full of change into an old coffee container every night, right?

Sure you may be rolling your eyes now,  but if you’re actually serious about curtailing your spendthrift tendencies, you’ll find a new appreciation for the small stuff…not to mention more money in your pockets and bank account.

What’s Your Motivation?

Maybe you’re saddled with thousands of dollars in high-interest credit card debt or perhaps you’re just fed up with those ever-nagging loans (cars, clothes, personal and what-not). Whatever the reason, if you don’t already know, I encourage you to find the motivating factor(s) behind your desire for change. Spend some time with a pen and a pad of paper and write down five reasons why you want to stop spending and start saving. Afterward, under each item, write one sentence explaining why it’s important to you. Trust me - writing this stuff down works! If you think you’ll just do it in your head as soon as you have time, you’ll never get around to it. The key here is to identify how and why your priorities have changed and what you can do to stay focused on your new goals.

Following Through

Take that list you created and make a few copies of it. Stick  copies around the bedroom, bathroom… Fold another and put it in your wallet, preferably next to your cash. In order to follow through effectively, you’re going to need to constantly remind yourself of your new financial goals so you can keep unnecessary spending in check.

Whenever you feel the urge to make a purchase, ask yourself these questions to determine whether or not it’s worthwhile:

• Is this purchase something I need or something I want?
• How will this purchase impact my financial goals?
• Will I regret this purchase next week or next month?
• Is it possible to make this purchase elsewhere for less money?

Let’s Get Real

Granted, carrying around a piece of paper with your financial goals scribbled on it isn’t going to transform you into a wealth-building machine overnight. You’re going to have weak moments and probably succumb to temptation more than once which is completely normal. However, you need to realize that your spending habits are just like any other habit - they’re going to take considerable effort on your part to change for the better.

Tips To Save By

• Make a budget. Spend some time developing a written budget so you can see exactly how you’re spending your money and how much you have left over to save.
• Cut back on frivolous spending. Do you really need to drop $250 on an ensemble? I have dropped close to that on a shirt, kicks…but right now?Maybe not.  Wouldn’t your time be better spent reading up on IRAs and 401Ks, really educating yourself about investments?
• Avoid the temptation. Not long ago, I’d find any excuse I could conjure up to head to that store I have been window shopping for awhile. I just had to get a new pair of socks or two or something else!! you get the idea. If you tend to reach for your wallet when you’re bored, try doing something productive instead, such as vigorous exercise.
• Embrace regular savings. My favorite tip of all! Open up a high-yield savings account with HSBC or ING Direct and set up a weekly contribution that you can afford. If you transfer just $25 each week, you’ll have accumulated over $1,300 in only one year.

Again, it’s not going to be easy to break the spending habits you’ve grown accustomed to, but like anything else in life, you get out of it what you put in it.

Image courtesy of: dmuth

Make Your First Million The Easy (And Boring) Way

Have you ever heard the saying “Making your first million is always the hardest?” While that may be the case for those looking to get rich quickly, it certainly doesn’t hold true for the rest of us. The only thing difficult about earning your first million is remaining patient while the magic of compound interest turns your savings into a small fortune. Remember, I said making your first million is easy - not quick, but if you think you can hang in there for a while, read on!

Step 1: Cough Up $50/week For The Cause

The very first thing you’ll need to do is budget for an additional $50 “expense” each week. Notice I said “week” instead of “month”. Personally, I find it much easier on my overall budget when I break my large expenses into weekly payments. Also keep in mind that while I consider this $50 an expense, the truth of the matter is that you’re paying this money to yourself, so it’ll still be there in case of an emergency.

Spend a couple months accumulating this money until you have about $500 saved. Once you reach that point, you’re ready to move onto step 2.

Step 2: Stash The Cash In A Mutual Fund

At this point, you’re making good progress: You have a total of $500 saved and you’re consistently saving an additional $200/month through your weekly contribution.

Now it’s time to go mutual fund shopping. What you’re looking for is a reliable growth stock mutual fund with a long track record (preferably ten years) of market-beating results. There are plenty of tools available on the internet to assist you in selecting mutual funds, but the one I always turn to is Morningstar’s Fund Screener.

I’ll cover the details and selection criteria of the fund screener in another post, but for the sake of this article, let’s just assume you chose the excellent American Funds Growth Fund of America (RGAEX). This fund will allow you to start investing with the $500 you saved in step 1 and is comprised of some terrific companies including Oracle, Google, Target, and Microsoft.

Now, through the brokerage of your choice, you’ll want to do two things. First, buy an initial position in the mutual fund you selected and secondly, set up a recurring purchase of either $50/week or $200/month - whichever works better for you. Don’t worry about trying to time the market to get a lower share price - you’ll be invested in this fund so long that it won’t matter. The most important thing is to stick to your guns and be consistent with your weekly or monthly contribution.

Step 3: Forget About It!

That’s right - once you’ve set up your recurring contribution, forget about it! Assuming you earn a reasonable 10% annual return on your investment, you’ll be a millionaire in about 38 and 1/2 years.

What’s most amazing about this investment plan is that over those 38 1/2 years, you’ll have only contributed $92,400 of your own money! The remaining $907,600 is courtesy of dividends and compound interest. If you’re in a position which allows you to save even more, say $400/month, you’d be a millionaire in only 32 years.

Additional Resources

• How To Make A Million Dollars (@ MSN Money)
• Eight Ways To Make A Million (@ Kiplinger.com)
• How To Make A Million Dollars In 10 Years (@ Free Money Finance)
• How To Make A Million Dollars Without Robbing a Bank (@ My Two Dollars)
• Your First Million Dollars (@ Millionaire Money Habits)

Image courtesy of: AMagill