Is saving $600 a month good?
Even though many millennials have delayed buying a house and other expensive purchases, we still value financial security. That’s why, as an increasing number of young adults struggle with debt, more are embracing frugal habits. Millennials are also the most digitally savvy generation to date — which is good news for anyone looking to save some cash.
However, when it comes to personal finance, there is no one-size-fits-all solution. Everyone has different variables — whether that’s living in an expensive city like New York or having student loan repayments and finding the best way to save money is not easy.
However, by asking yourself these five questions before you make any spending decisions as a millennial, you'll be well on your way in getting your finances in order.
1. How much will this cost?
We’ve all heard about how paying for things with cash can keep you from overspending, but what does that actually mean in practice?
When you’re deciding how much cash to set aside for a purchase, start by thinking about your monthly expenses and what you can realistically set aside in terms of savings. If you’re living with roommates or have a significant other who might also be contributing to household expenses, don’t forget to factor that into your calculations.
When you know how much you’re able to save on a regular basis, it’s easier to decide whether a purchase is worth it. If you have $100 in your budget for a new pair of sneakers, it’s a lot harder to justify buying them than if you have $1,000 that you’ve earmarked for a new computer.
2. What’s the point of this purchase?
Before you buy anything, it’s important to ask yourself what you’re getting out of it. This sounds a bit silly, but you may be surprised by how many purchases we make without really thinking about why.
Is this purchase something you truly need, or are you just buying it because you want it? What are you trying to get out of it? For example, do you want a more expensive car because you want the status that comes with it, or do you want it because you want to feel safer on the road?
When you can clearly articulate the purpose of a purchase, it’s much easier to decide whether or not it’s worth the cost. If you need a new computer because your computer is broken, making this purchase is an obvious choice. If you want a new computer because your old one is five years old and you’re sick of using it, this purchase might make more sense.
3. Is it an investment or a depreciating item?
There are two main types of purchases that you make: investments and depreciating items. Investments are things like education and real estate, whereas depreciating items are things like electronics and fashion.
If this purchase is something that will continue to give you value over the long term, it’s likely an investment. However, if you plan on using this item for only a short period of time before it becomes unusable, it’s a depreciating item.
The most important difference between the two types of purchases is how they affect your finances. Investments often help you to build long-term wealth, while depreciating items usually just create immediate gains. This isn’t to say that you should never buy a depreciating item; it just means that you should be conscious of the long-term effects of your purchases.
4. Are you paying with cash or credit?
Credit cards are a useful tool, but they can also be harmful to your financial health if you’re not careful. Credit card companies have created an enticing environment that makes it extremely easy to overspend and rack up thousands of dollars in debt.
When you’re deciding whether to make a purchase with cash or credit, ask yourself how you’re going to feel about this purchase in a month. If you pay with cash, you’ll feel the immediate consequences of your purchase almost immediately, which might make you think twice about making the purchase in the first place.
If you pay with credit, it’s easy to let the money slip away without realizing it. This is especially true if you’re paying your bill with a credit card that offers rewards. Unless the rewards are worth more than the interest you’ll pay on the purchase, it’s usually better to simply pay with cash.
5. Do you have enough money for emergencies?
Millennials are often stereotyped as spendthrifts who are always spending money they don’t have. While there are certainly exceptions, this stereotype is largely untrue.
Although you should always be saving for the future, it’s important to make sure that you have enough money to cover emergencies. Things like losing your job or getting into an accident can happen at any time, and you don’t want to be stuck without any financial safety net.
What percentage of your income should you have saved for emergencies? While there is no one-size-fits-all answer to this question, experts recommend having at least three months’ worth of expenses saved in case of an emergency.
Saving money is often easier said than done. It can be frustrating to know that you should be saving but not be able to find the time or motivation to actually do it.
If you’re struggling to save money, the first thing you should do is figure out what’s causing the problem. Are you spending too much? Are you not earning enough? Once you’ve identified the problem, it’s time to come up with a solution.
What works for one person may not work for you, so it’s important to try different things and find what works best for you. It may take some trial and error, but it’s definitely worth the effort.
Saving money is something that you have to work towards every day. If you want to be financially secure, you have to make the effort to save your money. There will be times when it’s difficult to save, but if you keep saving as a habit, you’ll be better off in the long run.
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