Although many people dream about winning the lottery, it's highly unlikely you ever will. But there is a tried-and-true way to reach your goals. It takes discipline and time, but unlike the lottery, it is practically guaranteed to help make your dreams come true. It's a steady plan of saving and investing.
Saving means setting aside money on a regular basis, preferably from every paycheck. But to save, you must spend less than you earn. Reducing your spending, as opposed to earning more money, is the real key to gaining control of your finances. Unfortunately, many people spend everything they earn, or even live beyond their means.
Why you should save
Cathy and Rita are next door neighbors and earn exactly the same salary.
The only difference is that Rita puts $50 each month into a savings account,
while Cathy spends everything she earns. Over the years, here's what happens.
Try adjusting Rita's savings to see further results.
* Rita's savings account earns 3 percent interest a year, compounded monthly.
By saving now, you will build a reserve for the future. Eventually, you may use this reserve to:
- pay for large future expenses, such as a down payment on a home or your retirement
- prepare for emergencies - medical or other
- improve your financial standing, such as paying off outstanding bills and improving your credit rating
- invest in yourself, through education, job training or tools for your trade or business
