When you land your first job out of college, it’s tempting to want to live large. Especially if you’re living with family or have a few roommates, you may have some funds to play around with. Or save.
But even though the draw is strong to have fun while you’re young, it’s much better to start saving. Here are five reasons why you should save instead of spend after landing a new job.
- Time goes faster than you think
What does every older person tell you? It’s like a broken record that plays on repeat: The years go by fast. Before you know it, you may be approaching fifty without a decent savings or retirement account. And what do you do then? People who find themselves in that position may end up working for the rest of their lives.
Even if it’s five dollars a week, get in the habit of saving while you’re young. As you get older and make more money, you can save more. It really adds up. And since time goes faster than we’d like, before you know it, you’ll have a good chunk of change in the bank.
- Interest adds up over time
Let’s say you save five dollars a week for five years. With 1.5 percent interest, you can make $20 on the $1,300 saved. That may not sound like a lot, but remember that it increases exponentially as you save more money. Whenever you can stash away $100 per week, you’ll make close to $400 in interest in that same 5-year period. Of course, interest rates can change based on market values and savings options. If you choose a high-yield savings account, you may make a higher percentage.
- Rainy-day expenses are real
Imagine you’re living paycheck-to-paycheck and you get two flat tires. That could easily end up costing $200 that you don’t have. What do you do? You need your car and only have one donut (not that you’re supposed to put mileage on those anyway). Without a good safety net, you could get stuck in some pretty precarious situations that aren’t easy to get out of. On the other hand, if you have even a thousand dollars in savings, you can get back on the road in no time.
- You can avoid a lifetime of debt
If you start your career by spending every penny you get, you’re more likely to rely on credit cards and loans to get out of sticky situations. Once you do this, you’re setting a pattern that can hold you down for the rest of your life. Remember the example of how much you can earn through interest? Well, it works overtime in reverse. Interest rates on loans and credit cards are much higher than they are on savings accounts. You could end up paying 25 percent or more every time you use your credit card. And if you don’t have the money to pay it off, you’ll pay even more over time.
- You may want to make a big purchase
From the moment you start your new job, it’s time to start thinking like an adult. This means that you may want to consider buying a house or condo. At the very least, you’ll probably want a decent car. Some of the pricey yet still great European vehicles may catch your eye. Or you may opt for a luxury American-made model. Either way, it’s best if you can make sizable down payments to avoid getting strapped down with a massive amount of debt.
Saving is never the “fun” option, but ironically, having a decent savings account can help you get more out of your life. It may not sound like fun to work instead of going on vacation, but making the smart decision can save you stress in the long run. Start saving now and enjoy peace of mind for years to come.