Save Now, Buy Later
Back in the day, saving to buy something was a common way of managing money. Then, society went credit card happy and shifted to a "buy now, pay later" mindset. Credit cards gave people less reason to save and less money to put aside, because they're loaded with debt. But saving now to buy later -- the old-school style -- is an excellent way to avoid that cycle and get on the road to building a nest egg. Here's why:
- It gives you a reason to save. You're putting money aside for a car, a vacation, a new kitchen or something else you want. Every dollar you save brings you closer to your goal.
- You avoid the cost of making payments over an extended period of time. Financing a purchase or buying with a credit card often means forking over extra money in interest.
- It restrains impulse purchases. If you have to save up to buy something, you have time to think about whether you really need it. A survey conducted in Britain by the Yorkshire/Clydesdale Bank showed that people actually enjoy their purchases more when they save in advance [source: Lowe].
Putting aside money for a big-ticket item works best if you set up a savings account for that specific purpose. You can budget regular payments into the account, calculate when you'll reach your goal and watch your funds grow. Setting up accounts for each of your savings goals in different banks makes even more sense. If your money's not as accessible, you won't be quite as tempted to raid your savings for some other purpose. As your savings accumulates, you can transfer it to other investments like certificates of deposit (CDs), which pay a bit more interest and further discourage you from cashing out.