Saving money can be one of the most difficult tasks in life. Most of us tend to spend whatever we earn.
To get some perspective on this, 48% of Americans who make at least $100,000 per year claim to live paycheck to paycheck. Even crazier is that the percentage of people who make only $75,000 and claim to be living paycheck to paycheck is roughly the same.
Why is that? Many people have an issue with mental accounting or the idea of being okay spending whatever they like as long as it isn’t more than they bring in.
Some purchases develop into “essentials” such as food delivery services, access to every streaming service, and being able to attend concerts or sporting events regularly. The lifestyle makes people feel they’re living paycheck to paycheck, and in one sense, they are, but it is due more to their spending habits than basic needs.
They might also claim they can not afford big purchases because there isn’t enough money. Of course, there is nothing wrong with going to a concert now and then or ordering an occasional DoorDash delivery; the reality is that many people could be saving money in these areas, which could be put toward larger purchases.
Here are three purchases people should save for before the age of 30.
Own a Car
Did you know that owning a car could save a person $1,000 to $2,000 per year? If someone were to go out and buy a $20,000 car with a $1,000 down payment and a 72-month interest plan over the course of six years, the total amount spent on the car would be between $24,000 and $28,000, depending on the interest rate.
If you break down the extra $4000-$8000 spent over the course of 72 months, it comes to an extra $55-$100 per month just to pay off interest!
When the car is paid off, it’s likely to start experiencing minor (even major) issues when it may be time to get a new car. Normally, this means starting the process over again, except that money could be made by selling the old car, which is often a fraction of the original price.
So what is the answer to this issue? Rather than spend $20,000 with a high-interest rate, buy $5,000-$8,000 in cash. Yes, this will take sacrifice and entail fewer trips to concerts or restaurants for a while, but it will pay off in a huge way.
After purchasing the car, put away $150-$200 a month for a future car. That may seem like a lot, but remember, the alternative is $350 or more.
After five years, sell the car for $2,000-$3,000 and add in the $9,000-$12,000 saved from the monthly savings. An $11,000-$15,000 car can be purchased with cash at the car lot.
Go through the same process, sell the nicer car in five years for $5,000-$7,000, and now you’ll have a $16,000-$19,000 car that may be purchased in cash. Essentially, this strategy allows someone to buy a car with cash every five years while only paying $200 a month rather than $350+ for a car every six years.
Own a Smaller Home, Offer Rent if Possible
Owning a home is a dream for many but not a reality for all who desire it. Prices on the housing market have skyrocketed lately, with some areas reporting bidding wars.
This may not be the best time to purchase a home, but that doesn’t mean you shouldn’t keep that goal in mind. The tough step toward getting a home is typically the down payment.
Often, the mortgage is simple to calculate and might even be more affordable than renting. Still, the down payment and other costs of obtaining a home can make it appear unaffordable.
There is a strategy to get you into a spacious home quickly: get someone to rent from you, preferably in the basement of a smaller home. Though this might sound odd, remember it’s a temporary initial step.
To learn this process, research or utilize property management agencies. You might not think to do this normally, but knowing the level and types of services they can provide is exemplary.
Owning a first home with a basement can mean your mortgage payment is slashed in half (or more). The down payment on the smaller house will be manageable, and the savings when you have a renter can go toward a downpayment on a bigger home in only a few years.
Travel
At how many restaurants have you dined this year? The answer might be quite a few, though you probably forgot most of them.
Going out is fine, but is it all that memorable? Unless it’s a special occasion, the answer is likely no.
One of life’s biggest regrets is not having traveled the world while you’re young. Many individuals wait until retirement to travel, and by that time, they are limited by the activities they can still do, unfortunately.
They also may end with financial obligations, whether children, bad investments, or high monthly payments on a mortgage or vehicle. Travel, of course, is expensive, but the memories last a lifetime.
Very few people go on vacation and say, “I wish I had just gone out to eat a few more times instead,” or “I should have used that money to invest in stocks.”
Taking a few dream vacations before you’re 30 can be a significant investment in yourself. It provides stories and memories for a lifetime.
