Chapter 5: Worrying About Tomorrow, Tomorrow

Spending vs. Saving
People tend to focus more on today than tomorrow. In many cases, that is sensible – filling an empty refrigerator is a more pressing need than saving for a vacation five years from now. However, we often put immediate desires ahead of future important needs.

Let’s say you have a hundred dollars in your pocket. You can either spend it on a fancy meal or put it into savings. If you spend it on the meal, you get to enjoy it today. If you put it in savings, you have to wait. Which is naturally more appealing? The meal, of course. It can be especially hard to save for things that are far off, like retirement. We tell ourselves we can always start doing it tomorrow. But tomorrow comes, and you tell yourself the same thing. As a result, many people don’t save enough to meet their goals.

Make a concerted effort to place savings in the forefront now. Put pictures of your goals on your refrigerator or in your wallet. Take pleasure in opening your account statement and watching your savings grow. If your workplace offers direct deposit, have some of your paycheck directly deposited into your savings account. If you don’t see it, you won’t miss it.

By saving today instead of waiting for tomorrow, you are contributing more and taking advantage of compound interest (interest that is earned on interest). The chart below shows a $200 a month investment, with an average annual return of 4%. If you started saving now, you would have $29,450 at the end of ten years. If you waited five years to start, you would have $13,392 – a difference of over $16,000!

The Role of Credit
A present-focused mentality can also lead to the overuse credit and debt. Using a credit card to make a purchase allows you to get something today without needing to immediately shell out cash. In fact, you probably won’t have to worry about paying the bill for at least a few weeks. So why not buy that $300 pair of shoes? But that due date will come, and if you cannot afford to pay off your balance in full, you will have to pay interest (plus deal with making payments until you can pay the balance off). Many credit cards come with interest rates well over 10%, so relying on credit can cost you quite a bit of money. Those $300 pair of shoes could wind up costing you $400.

Research shows that people spend less when they use a debit card or cash instead of credit. You feel the pain of parting with your money immediately – it is not some abstract future occurrence. Using a debit card or cash for most purchases can help you be a thrifty shopper, but you don’t necessarily want to avoid credit completely. Using credit cards can help you build a good credit score, which will come in handy if you want to get a mortgage or car loan. A good way to use your credit cards is to just make a small purchase or two on them each month. If all you charge is a $5 magazine, you should have no problem paying off the bill in full when it comes.

Be a Conscious Consumer
Earning money takes a lot of time and effort – spend your money with the same care by being a conscious consumer. Before you open your wallet, ask yourself:

• Will I really use the product or service?
• What are my motives for making the purchase?
• Do I own anything else that provides the same use?
• Did I feel a need for this item before I saw it in the store?
• What are the financial and emotional costs of the purchase, and can I really afford it?
• Can I get the product or service for less elsewhere?

By thinking about your spending, you can get what you need and enjoy without suffering from the post-shopping blues.