Seven Rules for Saving Money

How much you spend is almost as important as how much you make.

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Every penny that you waste is a penny that you could have invested or spent on something more worthwhile. By contrast, as many entertainers and athletes have discovered, there's no amount of money that is too much to spend if you act impulsively. Although everyone's situation is different, certain principles apply to saving money no matter who you are.

Set Clear Priorities

You can't get what you want if you don't know what you want. Moreover, if you fail to prioritize your goals and later discover that you can't achieve all of them, you may end up sacrificing important goals for the sake of lesser goals. Record your goals specifically and use numbers wherever possible -- set a certain retirement income, for example

Take Your Age Into Account

The principles of investing change as you age. The younger you are, the more risk you can afford to take because you still have time to bounce back from financial setbacks. Investing at 60 should be far more risk-averse than investing at 25.

Don't Sacrifice Happiness For Thrift

In at least one way, saving money is like losing weight -- unrealistic goals often backfire. Just as a 1,000-calorie-a-day diet won't help you lose weight in the long run (because you are unlikely to stick with it), a starvation budget that forces you to give up every activity you love for the sake of money in the bank isn't likely to last long. Instead of resolving never to leave the city limits, for example, forget that annual two-week cruise and settle for occasional weekend getaways instead.

Get Debt Under Control

It is normally not necessary to avoid debt altogether to rationalize your finances -- taking out a mortgage usually makes more sense than renting a home, for example. Avoid using debt to live beyond your means, however, or you'll end up living below your means later. If you're borrowing money simply to pay off interest on existing debts, you may need to impose a period of austerity on yourself to pay off those interest-producing debts.

Create a Customized Budget

Individualize your monthly budget to fit your lifestyle and preferences. If you don't watch much TV, for example, 600 channels of cable might not make much sense. By contrast, if you make money from the Internet, it might make perfect sense to spend money for improved connection speed.

Find the Right Savings Vehicle

It seldom makes sense to allow your money to accumulate in a savings account for years. Instead you might select a money market account, a stock portfolio, certificates of deposit or a combination of any of these. Consider the alternatives from several angles including rates of return and liquidity.

Ride the Wave of Change

Nothing stays the same. Interest rates change, currencies depreciate and new financial products emerge. Your needs may also change -- a sudden illness in the family, for example, may create a need for greater liquidity in your investments. Periodically review your budget, your spending habits and your investments, and make necessary changes promptly.