Many people get all wrapped up in their immediate needs and wants, forgetting that the money they make today should cover not only the present but also the future for them and their families. Being tied up with debt is even worse because when you do so, you’re committing years of income to today’s purchases.
That is why it is important to think of how to achieve a balance between what you need today and putting some money aside for children’s future tuition, retirement or even misfortunes such as medical emergencies and job loss. To do so, the first step is to determine three things: your current acceptable life standard, the cushion of savings that you need to have in case of an immediate emergency and the long-term savings and funds that cover your future plans.
This may be all too much if you’re already running paycheque to paycheque, but that doesn’t make this type of planning less important. In fact, those who are tight on money are more likely to overlook the needs for a safety net that guarantees future financial health, and therefore walk into the trap of finding themselves cash-strapped when a crisis hits.
To avoid this, keep the following points in mind:
Put a little aside
Saving small amounts every month may seem pointless, but the fact is even this little bit of money can make a difference in the long run. Of course, these little savings may not add up to college tuition or solid years of retirement, but they will give you a cushion for an emergency. Think, for example, if you’re out of work for six months: if you have savings that we just cover your expenses for a month or two, this will be much better than resorting immediately to debt. Besides, if you’re able to put your savings in some low-risk investment vehicle, you even may be having some good returns that make your little money go a longer way.
In short, don’t put off savings simply because all you can save is very little. Anything that you put aside today will add up to a significant amount over time. In addition, by doing so, you’re developing a good habit that hopefully will you consider more savings if your incomes increases.
Live good with value
Develop a habit of selecting products that provide good value, which is different than buying cheap products. When you think about the future, your choices should be as long-term as possible. For example, are you buying a car today while you’ll be starting a family in a year or too? How about an SUV? It may be more expensive now, but it probably will end up cheaper than changing cars in a couple of years.
A similar approach applies to any day-to-day purchases. Try to get products that are relatively well made and durable. Most of the time, they will prove to be more economic than changing or upgrading constantly.
Define future priorities
From retirement to a vacation home and children tuition, your savings may not be enough to cover everything. You will need to define what exactly you’re saving for and choose the best vehicle for this purpose. For example, if retirement is on your priority list, check with your employer and bank on pension plans and retirement schemes. Similarly, if securing your children’s future is a top priority, start a child fund immediately.
Although in some banking environments getting a high interest on your savings can be tempting, the more you channel your money in the right direction, the more likely you will be able to meet your goals. In addition, money that is saved in the name of a particular goal is less likely to be spent to satisfy a whim.
Rania Oteify, a former Gulf News Business Features Editor, is a Seattle-based editor.
