Religion, health, political views — many of our beliefs and behaviors today are based on what our parents taught us as kids. Unfortunately, when it comes to personal finance, studies have shown parents could do a much better job of educating their children. So if you think you might have missed out on a couple of pointers from mom and dad, here are 10 important lessons about saving money that they probably forgot to teach you.
10 Important Money-Saving Tips Your Parents Didn’t Teach You
1. Pay yourself first.
If you’re like many people, when you get your paycheck, you pay your bills, maybe do a little shopping or go out for the weekend, then find there’s just not enough money left over to put in a savings account.
The phrase “pay yourself first” is one of the most important concepts in personal finance because it solves this problem — when you’re paid, treat yourself like your most important creditor and funnel money into your savings accounts before spending money on anything else, including bills. You will make your savings goals the top priority, reaching them faster while still meeting your other financial obligations.
2. Spend less than you earn.
It seems obvious, but spending less than what you earn is actually a problem for many Americans, especially in our credit-driven society. It can be hard to refrain from buying things on impulse, or rationalizing big purchases because they can go on a credit card. However, spending less than you earn is the only way to stay out of debt and save money.
3. Understand the difference between “want” and “need.”
There is a big difference between the things we want and the things we need, though sometimes it’s hard to separate the two. The things we truly need are the basic necessities in modern life: food, shelter, clothing, transportation and communication (like a phone). Once all these necessities are fulfilled, all else is considered a want — even if that want is so strong that it feels more like a need.
That’s not to say you shouldn’t buy the things you want, but properly identifying the difference between a want and a need will help you prioritize spending and stick to a budget that will eliminate excessive wants and put more money toward needs.
4. Stop competing with others and be happy with what you have.
People who spend their time and money attempting to live the lifestyles of others will never be truly happy or find true wealth. Buying the latest tech gadget or designer outfit might make you superficially happy for a short time, but trends always change and you’ll never be able to keep up. Just imagine what you can do by saving the money instead.
5. Pay off all your debts before spending on anything else.
This includes credit card bills, student loans and any personal loans from the bank. Employers and credit lenders will check your credit reports that are generated by the credit bureaus to decide if they want to employ or lend credit to you. Create positive relationships with your lenders and remember to always pay back what you’ve borrowed.
6. Never pay full price when you don’t have to.
If you’re the type that likes to go camping, snowboarding or participate in seasonal activities, you’ll see that you can get the best deals during the off season. Buying gear can really add up and become very expensive, but for the best prices, try buying before or after the season starts.
Many companies who exclusively sell seasonal items will allow up to 80 percent discounts on all items. Next time you plan activities, keep this in mind — it will help you save a great deal and allow you to enjoy what you love to do.
7. Don’t pass on health care coverage.
Even if you don’t get sick often, you should always have health care coverage. A common fallacy is thinking you can save extra money each month by not having to pay for health care coverage. Well, imagine how much it would cost you if you had to pay out-of-pocket for serious medical treatment. It could cost a fortune. So why bother with saving a measly $150 when you can save yourself from medical debt? It is always better to be safe than sorry.
8. If you don’t understand an investment product, seek more information — don’t avoid it.
Many investment products are great tools for growing your savings, but can be complicated and difficult to comprehend. Don’t avoid a potentially advantageous investment because you don’t understand it. If you come across an investment that you’re not sure is right for you, even after you’ve done your research, refer to a trusted financial advisor to educate you about the product.
9. Know the difference between saving money and investing money.
When you save money, whether you put it in a savings account, money market account or certificate of deposit, you know that your money isn’t going anywhere and you will have it in the future. When you invest your money in a financial product, such as a stock, mutual fund, bond, etc., you take the risk of losing that money. Both saving and investing are smart things to do, but keep in mind that the financial market is volatile and you should have some of your savings in safe deposit products.
10. Have a three-month emergency fund (at least).
You never know what might happen in the future. There is always a possibility that you could be laid off because the economy isn’t doing well, or your home or car could require a major repair. Be ready with cash on hand in an emergency fund so you don’t have to incur credit card debt during tough financial situations.
Photo credit: ©American Advisors Group