Blogocentric Formulations

First Fruits & Zero Debt

Prompt #2: The World Economic Forum has found the average adult will outlive their savings by approximately a decade. What are your best tips for wise spending and saving?


When it comes to finances, I really only have two pieces of advice for good practices:

         1. Save before you spend.
         2. Don't spend more than you make.

For that first one, take a lesson from religious folks who tithe... whatever it is you can afford to put away for a rainy day, do that before you spend money on anything else. In a lot of Christian circles, it's called "first fruits," something you set aside from the first and best of whatever you make. In the agrarian days, that used to be a reference to an actual portion of your crops or whatever it was that you made your livelihood doing. These days, it's usually the money you bring in for doing whatever it is you do for work.

The best thing you can do is set a realistic amount of money that you can dedicate to saving every time something goes into your account. For most people, ten percent is a good target. So if you take home $50,000 a year, aim to put $5,000 in savings every year. If your biweekly take-home pay is $1,120, aim to put $112 into savings as soon as that paycheck hits your account.

Saving money is a gradual thing, and if you can develop a regular habit of doing it, those little sacrifices now will pay big dividends later. Which brings us to the second point...

Don't spend more than you make. That sounds trite, but it's amazing how many people don't follow that advice. Who regularly live beyond their means by charging things to a credit card, or taking out loans, or borrowing against their assets. And while some of that is inevitable because even the most thrifty of us are unlikely to have cash-on-hand to buy a house, or a new car, or to deal with an unexpected expense like a medical emergency or a business opportunity, a lot of people will extend themselves on credit to maintain a lifestyle beyond their means.

One of the things that my parents always stressed to me was the importance of having zero debt as often in your life as possible. Interest on debt can be a killer, where you end up spending many times the principal on servicing the interest on the debt. Aim to pay of your credit cards in full every month. Have a goal of not taking on debt until you have to, and when you do, to paying more than the minimum and paying it off as quickly as possible.

That's it... those are my two pieces of financial advice for anyone looking to make it to retirement with some money in the bank. Oh, that and putting money in a retirement account. Compound interest is magic, and you're unlikely to regret any money you're able to squirrel away in a 401K, IRA, Roth IRA, or other retirement vehicle where you're getting a decent return and the dividends keep getting reinvested and build upon themselves over time.