Even when you have extra income, it can sometimes be hard to save. And if you’re self-employed like I am, and margins are slim to begin with, it can be even more difficult. However, sometimes we can push ourselves to save through little tricks of the mind. Once such trick – or maybe “technique” is a better word – that I use, is making an effort to see the bigger picture. In this way, I can push myself to save by better understanding my money and my goals relating to that money.
Debt can be a monster
There is a particular statistic I like to reference that I feel helps quantify just how much of a strain upon personal finances debt can be. This statistic comes by way of Creditloan.com and puts the average American’s interest payments on debt at $600,000 over the course of a lifetime.
Just think, by going debt free, you could potentially negate all – or at least a large portion – of this substantial amount. I estimate that by working hard to pay off debt faster than necessary, my wife and I have only paid about $30,000 on debt over the years, yet we’ve managed to pay off close to $50,000 in student loan debt, have no credit card debt, and we now – through making extra payments and eventually downsizing homes – managed to own our home outright. By continuing our debt-free trend, we stand to save nearly $570,000 in debt interest compared to the national average.
Understanding how money can work…or be lazy
Over the years, I’ve learned just how valuable putting our money to work for us can be, but it can also be lazy…like right now. Currently, with interest rates low and debt paid off, our emergency fund is stagnating in a savings account earning around .05 percent interest. However it wasn’t always this way.
Before we bought our first home, and before the financial crisis, we put our downpayment funds for our first home in a high-interest savings account. With nearly $100,000 in savings (most of which was lost in the housing market collapse), we were earning between 3 to 4 percent on this money. This meant that every month we were getting almost $300 a month interest until we bought our home. Then this equity was largely sucked out of our hands due to the collapsing market. However, it’s a prime example of how money can work for us and produce additional income of its own.
Understanding the past and being realistic about the future
I grew up relatively poor, and this left me vowing fairly early on in life that I would never live like that again. And while I’m far from wealthy now, that upbringing has instilled in me a realistic vision of the future and of many of the systems that we often depend upon for financial stability such as Social Security, pensions systems, and even the federal government.
However, this realism also means that I take a broader approach to financial security for my family, which helps us better diversify our savings. Rather than sinking every penny into the stock market, we’ve focused on things like paying off debt and owning our home outright so that we aren’t harnessed with debt and forced to give up more of our income to make payments to others, choosing to live a more independent lifestyle instead.
And in this way, seeing the bigger picture allows us to focus on a variety of investment options, not just stocks or a singular retirement fund. In turn, this breeds confidence and security knowing that if one or two areas falter, we’re still secure in others, which helps to push us to find other ways to save for the long term.
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The author is not a licensed financial professional. The information provided in this article is for informational purposes only and does not constitute advice of any kind. Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.