I was talking to a friend the other day who makes significantly less than I do and we happen to be talking a bit about money. What struck me as I listen to him was the fact that when you are almost living month to month how expensive it is.
This was a interesting realization for me since I haven’t been there for such a long time now. When you living that near the edge life really is just more expensive. It’s hard to buy some items in bulk and save some money in the long run on food. It’s hard to avoid extra fees when you are almost always paying everything on a monthly basis. For example, my insurance for my car is 2% cheaper a year since I pay it off in one lump sum. Then if anything goes wrong it ends up on a credit card where it takes months if not years to pay off. To get out of that situation really takes a lot of work at paying back debt and then focusing on creating a small emergency fund.
On the other end, I can’t believe that families making $100,000+ are not saving more. Since starting my second job our combined family income will now exceed $100,000 on an annual basis and I’m almost overwhelmed by how much money I can save in a month. Yet families making this much still manage to get in over their heads in debt, if you don’t believe me watch a few episodes of Til Debt Due Us Part (one of my wife’s favorite shows). How do you waste more money in a month than most families even take home?!? I mean really folks at that kind of income level even with taxes saving 25% of your tax home pay should be drop dead easy. Yet it isn’t for a lot of people.
So what gives? I suspect the two sides are more related than people realize. At lot of people spend some point in their early life as a student living month to month or start at a low paying job. At that point a lot of your money habits get formed (let’s face it when you are young you are so impressionable it’s not even funny). So once you get older and start making more money I think people don’t realize the options they have to save money. They have always paid their insurance month to month and don’t think about it. Not to mention we often fall into the trap of “I’m worth it” where we buy things just because we can rather than really wanting or needing the item. Compound that with a lack of interest in their finances (after all you are making good money) and before you know it people are spending thousands of dollars in a month with not much to show for it.
So in the end it’s all about bad habits compounded on bad habits that stretch back to your first job. The difference between saver and spenders is savers realized some of their bad habits and fixed them. Spenders on the other hand still haven’t learned. So what bad habits have you overcome to start saving?