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Money Girl

156 MG You Can Learn to Save Money

Discover how to build real wealth and financial security.Like what you hear? Help us out by writing a review at iTunes. Questions go to money@qdnow.com. Thank you!

Broadcast on:
06 Jan 2010
Audio Format:
other

Discover how to build real wealth and financial security.Like what you hear? Help us out by writing a review at iTunes. Questions go to money@qdnow.com. Thank you!

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Hi everyone, and welcome back to Money Girl's Quick and Dirty Tips for a richer life. I'm your host, Laura Adams. This podcast is the second in our five-part series about taking charge of your finances in 2010. Last week I covered the first pillar of personal finance, setting goals. This week we'll address a topic that you simply can't build financial security or wealth without, saving money. You may not have control over many aspects of your life, like the economy, the stock market, or the price of real estate. But you do have control over how you spend your money. If you listened to last week's podcast on goal setting, you know that creating a spending plan is the best way to fund your financial goals. A spending plan is simply a map of your expected cash flow. You list all sources of income and decide how that money will be spent long before you receive it. Many people have difficulties sticking to their spending plans because they just can't get a grip on their everyday spending. Or they may view savings as the enemy of having fun and rebel against it. It's important to realize that when you save, you're actually spending money on something incredibly important and powerful, financial security. You've probably heard the saying, "Pay yourself first." That means you should make saving for your current and future needs a priority over other expenses. I like buying things as much as everyone else. New shoes make me absolutely giddy, but I also know that they can't pay my bills during retirement. Vearing away from your spending plan usually means you'll save little or nothing at all. That takes you further away from reaching your goals rather than moving you closer to achieving them. It takes a lot of maturity to know that you have money to buy something that you want, but to decide that you really don't need it and would be better off saving the money instead. The quick and dirty tip for saving is to live below your means with a realistic budget that balances your current and future financial needs. If you're wondering when you should start saving money, the answer to that question is right now. You're never too young or too far away from goals such as retirement, owning a home, buying a car, or paying cash for a vacation to put off saving. Consider this example. Let's say you have two friends, Terry and Tim, who are twins. They just graduated from college and are doing similar jobs earning about the same amount of money. Terry is fun loving and always foots the bill for her friends wherever they go. She hasn't saved a dime since she started working and has even accumulated some credit card debt. She reasons that she'll earn much more money in about 10 or 15 years and she'll pay off her debt and start saving then. Tim, on the other hand, is very concerned about whether he'll have enough money to retire as early as he'd like. He doesn't have a retirement plan at work, so he opened up a traditional IRA and started contributing $100 each month to it. Now, I want you to time travel with me 35 years into the future to see what's going on when they're both 60 years old. Besides having wrinkles, grey hair and needing reading glasses, what happened to their money? Well, Terry did eventually start saving $250 a month or $3,000 per year. She did that for the past 20 years. Tim, on the other hand, only saved $100 a month or $1,200 per year, but he saved that amount for 37 years. For the sake of simplicity, let's assume that they both invested their savings into a stock ETF in a traditional IRA with a 7% annual rate of return. So, how did it turn out? Terry's nest egg totals over $130,000, but Tim's is over $206,000. Terry had to save $60,000 in order for her fund to grow to $130,000, but Tim only had to save $44,000 for the same investment to grow to $206,000. But another way, Tim saved 26% less than Terry, but now has about 59% more money than she does. It almost seems impossible to save less and end up with more, but it is possible due to the power of compounding interest. When your interest compounds, it's sort of like double dipping because you earn interest on your savings and on the interest you already earned. That makes long-term investments grow dramatically, but the only way to take advantage of compounding is to start saving early. When you do that, you'll get a lot more for less, and who doesn't want that? So much of what we want to do can seem impossible, but the highest achievers among us are the people still reaching for something. The ones who aren't satisfied to stay where they are and want to keep climbing higher. It's those people who approach the impossible and embrace it. There's a vehicle for people like that. It's called the Defender. The Defender is an icon reimagined through thoroughly modern design. It's got a tough, rigid body design and durable, lightweight, monocoque architecture for extra strength. With precise detailing and compelling proportions, the exterior of the Defender is designed with integrity. This is a vehicle capable of great things, engineered to meet challenges head-on with an exterior that's been tested to the extreme, experience the Defender's legendary capability off-road and on. And there's a family of vehicles for Defender. Meet the Defender 90, Defender 110, and the 8-seat Defender 130. So are you ready to embrace the impossible? Explore the Defender at LandRoverUSA.com. September is a great month for planning. We start thinking about the rest of the year, whether it's back to school, big year-end work projects, holiday plans or travel, planning ahead is crucial in life, especially when it comes to what happens when you're gone. Getting life insurance may sound daunting, but Policy Genius makes the process a breeze. With Policy Genius, you can find insurance policies that start at just $292 a year for a million dollars of coverage. Some options offer same-day approval and avoid unnecessary medical exams. Policy Genius's technology lets you compare quotes from America's top insurers in just a few clicks to find your lowest price. It's the country's leading online insurance marketplace. And if you ever need help or guidance, they have an expert license support team to answer your questions, handle all the paperwork, and advocate for you throughout the process. It's never too late to plan ahead. Go to PolicyGenius.com or click the link in the description to get your free life insurance quotes and see how much you can save. That's PolicyGenius.com. Now at T-Mobile, get four 5G phones on us and four lines for $25 a line per month when you switch with eligible traders, all on America's largest 5G network. Minimum of four lines for $25 per line per month without a paid discount using debit or bank account, $5 more per line without a pay plus taxes and fees and $10 device connection charge. We had 24 monthly bill credits for well qualified customers contact us before canceling the entire account to continue bill credits or credit stop and balance on a required finance agreement to bill credits and if you pay off devices early, ctmobile.com. In order to kickstart your new year's saving resolution, I can't think of a better way to do it than by making it automatic. Payroll deductions for workplace retirement plans are fantastic. Be sure to always contribute to them, especially when your company matches your contributions. If you're paid by direct deposit, you could instruct the HR department at work to send a percentage of your pay directly to a savings account or you can use online banking to set up a recurring transfer so money is automatically withdrawn from your main payment or checking account and deposit it into a money market or IRA, for example. That way, you don't have to think about saving. It's done consistently and you probably won't even miss the money after getting into the groove of your new routine. To sum up, the best way to become a better saver is to make a part of your lifestyle. Don't put yourself in situations where you could be tempted to overspend. If you don't have money budgeted for buying clothes, for instance, don't go to the mall on a Saturday with a friend. Go to the park or beach instead. A couple of resources for great saving tips are AmericaSaves.org and choose to save.org. You'll find these links on the blog at moneygirl.quickanddirtytips.com Remember that it's not really about how much money you make, but about how much you vow to keep for yourself. Your financial security is riding on your ability to put off what you could have today, so you'll have ample financial resources to draw from later on. A great way to show your support is to take a couple of minutes to submit an iTunes review of the show. I'm glad you're listening. Cha-ching! That's all for now. Courtesy of Money Girl. Your guide to a richer life. Is this house a good price compared to others in the area? Are prices going up or down? If I don't make an offer right this very moment, will I miss my chance? These are just some of the questions a home buyer might ask, and these are the sorts of questions an agent who is a realtor can help answer. Because realtors have the expertise data and access to specialty training to help you navigate the process of buying a home. They provide support, guidance, and have your back every step of the way. That's what realtors do, because that's who we are. Realtors are members of the National Association of Realtors. Imagine earning a degree that prepares you with real skills for the real world. Capella University's programs teach skills relevant to your career so you can apply what you learn right away. Learn how Capella can make a difference in your life at Capella.edu. [BLANK_AUDIO]