Whether you have a job or still get an allowance from mom and dad, it is important that you learn how to save money. By living below your means, you will have cash available to pay emergency expenses or to tide you over during times of unemployment. What are some other good reasons why you shouldn’t spend every dollar that you earn?
Your Money Compounds Over Time
Whether you put your money in a savings account, in a CD or in a stock portfolio, your earnings will compound over time. This is because the interest that you earn is added to your account, which gives you a larger balance to accrue interest on. For example, say you have $100 in an account that returns 1 percent per year.
At the end of your first year, you now have $101 assuming that you don’t contribute anything to that account. In the second year, you will earn a 1 percent return on $101, and this growth will occur in an exponential fashion each year for as long as the account is open. Most credit unions Houston and others in the country have interest-bearing savings and checking accounts that are free and easy to open.
Don’t Pay Interest to Lenders
If you don’t have cash to pay your bills or cover emergency expenses, it becomes necessary to go into debt. While it may be worthwhile to take out a loan to buy a house or buy a car, it generally isn’t a good idea to take on debt to pay taxes or buy dinner. This is because the interest paid on a credit card balance may be significantly more than the price of the small purchase.
You don’t want to put tax or student loan debt on a credit card because they generally cannot be discharged in bankruptcy. This is generally true even though credit card debt is generally eligible for discharge through bankruptcy. Therefore, you could be stuck paying interest on those balances despite the fact that you have little money to pay it off.
Financial Health Equals Physical Health
When you have money to pay your bills, you tend to stress less about your job and what may happen if you lose it. It may also be easier to feel good about your job or career when you know that it is possible to leave at any time because there is money to cover expenses while you aren’t working. You also tend to have more money available to see a doctor and go to the dentist on a regular basis. By getting regular care, the odds of developing major health problems are significantly lower.
Learning how to manage your money can benefits for your career and your health. It may make it easier to be selective when choosing a job or give you more leeway to forego a paycheck when starting your own company. The good news is that saving just a few dollars a week can make a significant difference to your financial situation over the course of several months or years.