- Sacrificing now can lead to a much more comfortable future, financial planners say.
- Giving up houses over your budget and new cars that depreciate quickly can have a massive impact.
- And curbing the costly habit of dining out now can help create a more comfortable life later.
- Read more Personal Finance Insider coverage »
Sacrificing yourself now for a better life later is not the most glamorous idea.
But it is important. Financial planner Michaela McDonald, who works with the financial app Albert, said even small changes made now can add up.
“I always urge clients and people to look at the money they’re putting into non-essential spending and think, ‘What if I had that $500 to put in an investment account? And how much would that $500 be? Would it look like it had been reversed for 10 years?'”
Any money you save now has the opportunity to grow with compound interest over the years, creating a snowball effect. The changes you make earlier than later in life can have a big impact later on.
Here are three things financial planners recommend sacrificing now to allow your savings to grow.
1. Reduce the size of your home
Housing is the biggest expense for most Americans, so saving money here will add up.
McDonald recommends rethinking your housing budget. “Some people will choose to live in really nice apartments that have a little more luxury, and maybe they’re spending 30% or 35% of their income on rent every month,” he 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 somewhere more modest in your 20s and 30s, the money you’re saving can go toward your retirement,” she said.
The same is true for homeowners: Buying a house over 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. Do not spend more on transportation
Spending more than you should on cars, taxis, and other transportation could be hindering your ability to save.
“Two killers of anyone’s budget will be how much they spend on housing and how much they spend on transportation,” said Brian Walsh, financial planner at SoFi.
For those who own cars, opting for an affordable used car over a new one can leave more money to invest. New cars tend to depreciate quickly, losing value as soon as they roll off the lot. Used cars cost less and don’t depreciate as quickly. Plus, a more affordable car could allow you to pay cash and eliminate financing and interest charges.
3. Save instead of going out to dinner frequently
If you’re spending more money at restaurants than you should, you may be eating into your retirement savings.
McDonald said this is especially true for young people. “For those in their 20s and 30s, I think giving up eating out a lot [is important]”, he said. “Especially now that the world opens up again, you want to go 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 you really need to cut back on,” McDonald added.
Budgeting for it is important. “You want to go out to dinner to take between 5% and 8% of your expenses [budget] every month,” he said.
By cutting back on these things now, you can not only make saving a habit and lifestyle, but also make that money grow faster.
Through the years.