Money Begets Money

LIFE IS CHEAPER WHEN you have some savings. How so? Think of all the extra costs you incur when your finances are tight—and how you can sidestep those costs as you build up your retirement and taxable accounts.

For instance, as your savings grow, your need to borrow fades. Initially, that might mean never carrying a credit card balance and incurring finance charges. Later, you may have enough to pay cash when you buy a car. You might also put down 20% or more when you buy a home, thus avoiding the need for private mortgage insurance. Perhaps you’ll even get to the point where you don’t need a mortgage to purchase a house.

Your burgeoning wealth should also allow you to avoid fees for bouncing checks, having financial account balances below the required minimum, and paying bills late. Less debt and a history of on-time payments should boost your credit score, which ought to trim your borrowing costs when you next need a loan.

Similarly, as your wealth increases, you may be comfortable raising the deductibles on your health, homeowner’s and auto insurance and extending the elimination period on your disability and long-term-care insurance. The latter is the time between when you file a claim and when the insurer starts paying benefits. You might even self-insure for nursing home costs, so you don’t need a long-term-care policy. You might also decide your family would be fine financially if you died or suffered a disability, prompting you to drop your life and disability insurance.

All this can lead to a virtuous cycle. As your savings balloon, you can shave your cost of living further, giving you yet more money to save. There is, as they say, a reason the rich get richer.

Next: Savers Need Less

Previous: Saving Is a Bargain

Notify of
Inline Feedbacks
View all comments

Free Newsletter