THE HABIT OF SAVING 273Gas $100
New clothes $150
Credit card bills $150
Student loan $200
"Spending money" $250
Total outgo: $3,000Terry is saving nothing. It seems impossible, with a car and an apartment and
a professional wardrobe to keep up, let alone a college loan and a big credit card
debt, which is how Terry pays for such things as birthday gifts, vacations, car repairs,
and so forth. That $250 spending money vanishes on lunches, dinners out, toiletries,
and other small things. How could Terry ever get ahead?
Terry has made some poor choices. The down payment on a new-car lease
emptied the savings account, and car insurance is steep. A professional appearance
can be important to success, but Terry has long since established a good basic
wardrobe, making additional purchases unnecessary. With a credit card balance of
over $4,000, Terry is paying more than $600 a year in interest, more than $50 a
month. A cheaper apartment alone would provide enough money to payoff half the
credit card debt in a year, saving another $300. The car lease is, unfortunately, an
obligation Terry is locked into for two years, at the end of which time a new lease will
have to be signed or the outright purchase would be several thousand dollars.
Terry decides to bite the bullet and moves to a cheaper apartment, freeing up
$200 monthly Half of that goes to credit card bills and the remainder is used
to pay cash for purchases that otherwise would have been charged. Additionally,
Terry decides to set aside $20 each week-not a large amount, but for Terry an
important beginning.
At the end of a year, Terry will be only $1,200 in debt to credit card companies
and able to retire that debt completely in six months more. At the end of that same
year, Terry will have more than $1,000 in the bank. After the liberating moment when
the last credit card bill is paid, there will be an extra $250 each month. But instead
of spending that newly available cash, Terry will be in the grip of the saving habit and
will devote all of it to savings, socking away $4,040 over the next twelve months.