We’re all overdue for some good news about money. So, we checked with MSN Money’s financial expert Liz Pulliam Weston. She says that by following three simple principles, you can increase your savings and decrease your debt.
- Know that there’s a difference between needs and wants. If you think about it, our actual needs are pretty limited: food, shelter, clothing, and companionship. Just about everything else is a want. Sounds simple enough, but it can get tricky. For example, it’s easy to convince ourselves that we need that new sweater or jacket when the one in our closet would keep us just as warm.
- The more we have, the more we want. When you’re tempted to do a little retail therapy, remember this: Buying something new might make you happy for a little while, but it won’t be long before you’re jonesing for your next shopping trip. So, try this instead. The next time you feel the urge to splurge, put the money in the bank instead. Seeing your savings grow will be more satisfying than another pair of shoes, and gives the same endorphin surge.
- Which brings us to the final money principle: Compound interest can make or break you. Here’s how it works: Let’s say I give you a penny today, and double the amount every day for a month. How much money would you get on the 31st day? Over $10 million dollars! Of course, no one’s going to double your money every day, but it does explain how saving small amounts can build a large nest egg. Unfortunately, there’s a down side to compound interest - paying it. If you owe a thousand dollars on the average credit card and you drop your monthly payment from 50 to 25 dollars, you’ll be in debt three times longer and pay more than TWICE as much in interest.
The truth is - buying new things won’t make you as happy as putting money in the bank, and if you think about that the next time you hit the mall, you’ll spend less.