Young me wishes my parents had even the slightest bit of wisdom to bestow about savings and early retirement. They did not, but they did teach me a healthy fear of credit cards. Namely, if you couldn’t buy your everyday purchases with cash you CANNOT put it on a credit card. They don’t own credit cards (yes, even today). While my parents did not impart ways to invest or how to retire early, they did give me a powerful tool that placed my financial landscape on a different playing field than all my classmates in college. I graduated college with no debt and a small amount in savings. I had a $500 limit on a single credit card which I never carried a balance and still have today.

My High School teachers should have covered savings rates and the power of compounding interest. Savings and interest earning potential are some of the things that should be taught in every High School in the World. The power of compounding interest works best for those who start very young. More importantly the power of compounding interest only world for those who can save.

Teaching teenagers how to save and that small savings do add up is extremely important in the consumerist society in which we live.

In my first post, I examined how an average spender can rack up debt throughout their average spending habits. Putting unnecessary purchases on credit cards and giving into the rampant consumerism that plagues the First World. However, those few of us that live below our means, hoard savings wherever we can find them and choose to be weird in by society’s standards can benefit from credit card perks. By paying off credit cards every month and never carrying a balance there is the potential to save a small amount at a very young age and build a very high credit score in the process.

I mentioned before that the thought of carrying a balance on a credit card makes my physically ill. I have never carried a balance on a credit card, and think it is a supreme waste of my time and hard earned money. Instead, I keep my oldest credit card open which happens to be a decent card and have two rewards cards which I charge everything I possibly can. I then rake in the rewards dollars like the MFing money whore that I am.

To recap MF’s credit cards benefit savings are as follows:

  • Oldest card: Bank of America
    • Costco switched to VISA and they introduced 2% cash back at Wholesale stores and 3% on gas. I now use it exclusively at Costco until I reach the $2,500 limit and our annual gas consumption for points
      • Annual cash back: 2,500 x 2% = $50 at Costco; 1,156 x 3% = $35 on Gas = $85
  • Groceries: American Express Blue Cash Preferred Annual Fee $75
    • My husband and I love food. It makes sense to have a rewards card that, well, rewards our love of food and cooking. AMEX has the best rewards program for grocery stores (this does NOT include wholesale stores!) at a hefty 6% for the first $6,000!
      • Annual cash back $360 – $75 (membership fee) = $285
      • Note on annual membership fees: If you spend $1000 the first 3 months, you receive a $150 statement credit which essentially gives you 2 years with no annual fee…bringing your rewards back up $360/year. You could use the card for 2 years, cancel said card, then reapply a week later…essentially starting the free two-year period again, and again, and again…not that I would know anything about this infinite loop of annual rewards of 6,000 x 6% = $360
  • Everything Else: Capital One 1.5% cash back
    • Between the two above cards my husband and I spent approximately $10,000 per year
    • We still purchase miscellaneous things that ring up to 7,500 throughout the year
      • Annual cash back 7,500 x 1.5% = $112.50
  • MF’s free money cash back from credit cards annually: 85 + 360 + 112.50 = $557.50

I spent a great deal less than the $17,000 above purchases when I was in college. In my late teens and early 20s, my annual expenses (other than rent) were around $7-10,000 per year. At that point in my life, I didn’t qualify for the American Express card as I had not yet earned the exceptionally high credit score I now have. So, my annual rewards were between:

  • Low end: $7,000 x 1.5% = $105
  • High end: $10,000 x 1.5% = $150

I have a brother who is 18 and just started college. He has the opportunity to learn how to create savings and invest early in life if he invests the “free money” from paying off his normal credit card purchases on time. He can take the extra $105 to $150 per year and start a retirement account.

If the account is opened with $105 at the age of 18, then $10 is deposited every month for the next 4 years the ending balance with an average rate of return of 7% is $670.43.

  • Making $67.62 in interest over the 4 years as a broke college student.

Now, some of you might look at a return of $67.62 as a complete waste of few nights out on the town and some extra guacamole at Moe’s, but you are missing the point! The habit you are creating will serve you well the rest of your life! The ability to save $10 a month greatly outweighs the momentary pleasure of adding guacamole to that burrito. You are creating a mindset that saving is a reward to your future self!

Society needs to educate our teenagers that interest earned on savings is a powerful tool and interest paid is the road to years upon years of debt! Delaying gratification, or in this case guacamole, and savings is an amazing exercise in self-control.

Conclusion!

Getting rich quickly is only an option for the 0.00001% of the extraordinarily lucky.

Getting rich through delaying gratification is a tool anyone can use and from which everyone can benefit. Start savings young!

A Simple Savings Strategy
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