Needs Versus Wants

If you are ever going to get ahead financially, you must know the difference between needs and wants. There is nothing wrong with wanting a brand new car, but you must realize that it is a want and not a need. You can get a perfectly fine car that is a few years old and save thousands of dollars. No matter how much money a person has, decisions must be made based on needs versus wants.

The most basic needs are food, shelter, and water. It is possible to survive with just these most basic needs being met, but it is not practical. We need a way to get to work, but this could be taking the bus. We need some pleasure in our lives, but we do not need to own hundreds of DVDs or need to go to the movies every weekend.

The trick is to base your spending on your income, and not on what you feel you deserve. It is easy to reward yourself with expensive items that you tell yourself that you deserve. I work hard. I deserve a $200 jacket. I believe that a better way to reward yourself is: I work hard, I deserve to be able to retire before the age of 80.

So a primary question to ask before purchasing an item is whether it is a need or a want. Several other questions will aid you in deciding whether or not to buy. You should ask yourself if you already own a similar item and where exactly you will store the item in your home. And if you still end up buying what you know you shouldn't, you probably just need to stay away from the mall.

My List of Ways to Reduce Your Expenses

Here is a short list of some ideas on how to save money. I will go into more detail in future posts.

• Change Your Own Oil
• Shop Craigslist, Yard Sales, & Thrift Stores
• Bring Your Lunch to Work
• Limit Dining Out
• Research Before Buying
• Pay Credit Card in Full Each Month
• Use the Library
• Watch Movies at Home
• Limit Collections
• Buy Used Cars
• Try Store Brand Food
• Avoid Advertisements

Pay Yourself First!

In order to start saving for retirement, you must pay yourself first. This means every time you get paid, you must put money toward your future before you pay for the wants and needs of today. Many people have good intentions. They say that they will save whatever money is left at the end of the month. But there never seems to be any money at the end of the month.

Before you pay everyone else, you must pay yourself. You can then only spend what is left. Even if you end the month with only a few dollars, at least you put money toward your future. But what if you pay yourself first and then you run out of money? This may mean that you need to adjust your expenses. Your expenses will always rise to meet your income unless you resist. In my next post, I will share some ideas about cutting expenses.

Why Save in Your 20s for Retirement in Your 60s?

I will show you why. Imagine two people saving money for retirement. They each save $200 month. The first starts at age 25, while the second waits until age 30. How big a difference can five years make? Lets run the numbers. I will use the Simple Savings Calculator from bankrate.com.

A person investing $200 a month for 35 years ends up with $588,357, which is not bad. But start five years earlier and the total is $936,264. That is a difference of $347,907! Five years of investing $200 a month comes out to an extra $12,000. So putting in $12,000 in your 20s can make a difference of nearly $350,000.

This is a simplified example, but you get the idea. The more you save right now, the less you have to save later. There is no time like the present.

The Beginning of Your 20s Your Money

The financial decisions that you make in your 20s can have a huge impact on your finances for the rest of your life. My hope in writing this blog is that I can help people in their 20s make decisions that will lead to successful financial lives. The subject of personal finance is huge. The overall keys to success are relatively simple, but putting them into practice can be challenging.

In preparing to start this blog I wrote out a list of financial books that I have read. I came up with 12 and I know I omitted some. Many of you do not have the time or the desire to read that many financial books. That is where I come in. I will share the best of what I have found. I plan to present it in a way that makes sense to young adults who have not spent a lot of time learning about index funds and expense ratios.

Like I mentioned earlier, the key to getting ahead financially is simple. You must spend less than you earn. If you can do this, you are on your way. If you cannot, you will never get ahead. But how do you know if you are spending more than you make? One sure sign is if you have more month than money (in other words, the money ends before the month does). Another sure sign is if you cannot pay off your credit cards at the end of each month. Another key step to getting on solid financial ground is to actually think about your finances. So for now, just start to think about your finances. What are you doing well? What do you need to do better? We will get specific soon.