- Sacrificing now can lead to a much more comfortable future, financial planners say.
- Giving up above-your-budget homes and fast-depreciating new cars can make a massive impact.
- And curbing an expensive dining-out habit now can help create a more comfortable life later.
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Sacrificing now for a better life later isn’t the most glamorous idea.
But it’s important. Financial planner Michaela McDonald, who works with the financial app Albert, said that even small changes made now can add up.
“I always urge clients and people to take a look at the money that they’re sinking into non-essential spending and flip it in their mind: ‘What if I had that $500 to put into an investment account? And what would that $500 look like if it was invested for 10 years?'”
Any money you save now has the opportunity to grow with compound interest over the years, creating a snowball effect. Changes you make sooner rather than later in life can make a big impact later on.
Here are three things financial planners recommend sacrificing now to allow your savings to grow.
1. Downsize your housing
Housing is most Americans’ largest expense, so saving money here will add up.
McDonald recommends re-thinking your housing budget. “Some people will choose to live in really nice apartments that have a little bit more luxury, and maybe they’re spending 30% or 35% of their income on their rent every month,” she said. Experts recommend spending no more than 30% of take-home pay each month on rent.
Moving to a lower-cost apartment could help you save and invest more for later. “If you can live in a more modest place in your 20s and 30s, the money that you are saving can be put towards your retirement,” she said.
The same is true for homeowners: Buying a house at the very top of your budget means you’ll have less money available to save for later. Buying a more modest home that meets your needs frees up cash in your budget.
2. Don’t overspend on transportation
Spending more than you should on cars, taxis, and other transportation might be hindering your ability to save.
“Two killers of anyone’s budget are going to be how much they spend on housing and how much they spend on transportation,” said Brian Walsh, a financial planner at SoFi.
For those who own cars, opting for an affordable, used car instead of a brand new one can leave more money to invest. New cars tend to depreciate quickly, losing value as soon as they drive off the lot. Used cars cost less, and don’t depreciate as quickly. Plus, a more affordable car could allow you to pay in cash, and eliminate financing and interest expenses.
3. Save instead of dining out often
If you’re spending more money at restaurants than you should, you might be eating into your retirement savings.
McDonald said this is especially true for those in their younger years. “For those that are in their 20s and 30s, I think foregoing dining out a lot [is important],” she said. “Especially right now with the world opening back up, you want to get out, you want to do things, but I think you have to do it within reason.”
“If you’re spending 20% of your income on dining-out experiences, I think that’s something to really cut back on,” McDonald added.
Budgeting for it is important. “You want dining out to take anywhere from 5% to 8% of your expendable [budget] every month,” she said.
By cutting back on these things now, not only can you make saving a habit and a lifestyle, but also keep that money growing with
over the years.