Some years ago, when I just finished college, but right before I started my accounting career, I started using the credit cards that had been provided at the school gate. Do you remember those days? If you sign up, you get a free t-shirt or something free – so it was very easy to sign up. Little did I know how much that free t-shirt would actually cost me.
Please tell me I am not the only one!
When I started my career, I had a colleague and friend who had more experience in the area of finances than I did. While we were both budding CPAs, the training for an accountant is very different for a financial advisor. One day during our break, we sat together and he walked me through how to make sure I was paying down my debt, saving in my 401k, and also saving in a bank account for the future – being able to do these things all at once. I think without knowing it at the time, that was the fundamental of my financial planning training.
All of those steps became automated.
We looked at how much I could afford to contribute to my 401k – and established that as an automatic pre tax withdrawal. It came out of my paycheck without me ever seeing it.
We looked at my debt and determined how we could pay it down in as quickly as possible – even if it meant transferring the balance from one credit card to another with zero interest for a time – which allowed no additional interest to be accrued. The caveat is to try to pay it off within the time frame, otherwise the interest goes back to whatever market interest rates are at the time.
Then, even though I technically couldn’t afford it – I saved $50 out of each paycheck. I set this up as an automatic withdrawal. If I didn’t have it in my checking account, I couldn’t spend it.
This conversation took place over 20 years ago, and this method has allowed me to save for a whole host of things throughout my life. I’ve also created some disciplines around how I spend, and save, but this is still a great tool to use.
I was having a similar conversation with a friend recently, and asking how he got started. He shared that he had started with a similar method, by transferring $25 out of each pay check into an investment account. He did this process over the course of less than 10 years. He also shared that when he was getting married, he was able to use the proceeds in that one account to pay for his entire wedding – which had not been inexpensive.
Friends, this is the power of savings, reducing debt and compounding over time.
You may have been doing some of these things, but now need to ensure that you are taking the best opportunities for your earnings, let’s have a conversation.
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