En español | As you near retirement, continuing to save in your workplace retirement plan or a Roth IRA can be a smart move. But what often gets overlooked is the incredible value of reducing your spending before you retire.
The less you spend today, the less you will need to support yourself tomorrow. And reducing your spending today could free up some valuable dollars you can put to great use by paying down credit card debt, accelerating your mortgage payments and buying a long-term care insurance policy.
Here are my three rules for making more of your money by spending less.
1. Live below your means but within your needs
What exactly do I mean by that? Spend what you need, not what you can afford. For instance, you may need a car. And you will likely need a car loan. That’s fine, though I recommend that you never take out a car loan for longer than three years. Let’s say you can afford a $500-a-month payment over three years for a car you want, but you could instead spend $300 a month over that same period to buy a car that meets your needs. In that case, buy the car with the $300 monthly payment. Then drive the car as long as possible so you can have years when you make no payments.
2. Test your spending: Is this a need or a want?
Every time you’re about to make a purchase, ask yourself: Is this a need or a want? What is a want? A want is eating out at a restaurant. A need is buying food at a grocery store. A want is a lakeside getaway for a week. A need is buying medicine at the pharmacy. You get the idea. If it’s a want, just walk away. If it’s a need, then buy it. Try this for six months and you’ll be shocked at how easy it is and how much money you’ll save.
3. Get as much pleasure out of saving as you do out of spending
In the way you get pleasure from buying a new piece of clothing, a new car or whatever, the same should be true when you save money. It’s really that simple, my friends. Saving money is not an act of denying yourself. It’s the means by which you can bring more confidence and calm into your life, because you’re not overextended. Celebrate your savings.