I’m a Financial Advisor: 5 Money-Saving Tips From Your Grandparents’ Generation That Still Work Today
A lot changes from generation to generation. Financial technologies, for example, have revolutionized the way people deal with money. This has made certain financial strategies from previous generations obsolete or, at the very least, less effective than they once were.
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But you might be surprised at just how many of those old-timey strategies — methods your parents or grandparents have been using for 20 or 40 years to save money — are still sound today.
GOBankingRates spoke with Melissa Murphy Pavone, CFP , CDFA and director of investments at Oppenheimer & Co. Inc, about what old-school money-saving advice works today. Here’s what she said.
Live Below Your Means
One of the best ways to save money and become financially stable is to spend less than you earn. Not only will this ensure you have enough money to handle your everyday expenses, but it’ll also free up some cash for your long-term financial goals — like buying a house or retirement.
“The secret to building wealth is living below your means. You need to be clear on the income coming in and the expenses going out,” Pavone said.
There are many ways to live below your means. Start by thinking about your current lifestyle and financial habits. You might find that you’re needlessly or impulsively buying things you don’t actually need or even use.
From there, review your income and expenses to determine how much you’ve got coming in and where it’s going every month. If you don’t already have a budget, now’s the time to create one. And if you do have one, you might want to update it.
“As your income increases, lifestyle inflation creeps in,” Pavone said. “Avoid the urge to spend more as you make more.”
Instead, Pavone suggested saving more aggressively and investing where you can. Your future self will thank you.
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Pay Yourself First
Another old-timey tip from older generations, Pavone said, is to pay yourself first.
Part of this involves saving and investing more. But it also means recognizing the power of time and taking advantage of compound interest. The more time you have, the more your money can grow with compound interest.
Allocate a portion of your regular paycheck toward retirement, savings or emergencies. You can even use modern-day tools to automate savings and make saving a habit that’s easy to keep.
You may also want to use a high-yield savings account (HYSA) rather than a traditional one. That’s because HYSAs have significantly higher interest rates than traditional accounts. This means your money can grow faster still.
The typical rate on an HYSA is between 4.50% and 5.25% APY. A traditional savings account, meanwhile, has a typical APY of just 0.46%.
Have an Emergency Fund
Chances are, your grandparents had an emergency savings fund of some sort. Even if they didn’t, they probably recommended that their children or grandchildren have one.
“You need to expect the unexpected. Have six months of expenses earmarked in a high yield savings account,” Pavone said.
An emergency fund can safeguard you in case something unexpected happens. This could be a medical bill, a flat tire, an emergency trip across the country to see a loved one or something else.
Whatever the case may be, putting some money aside for emergencies can keep you from having to draw from other accounts — like savings or retirement funds — to cover the unexpected. This can also prevent undue financial stress since you won’t need to use your regular income to go beyond your means just to get by.
Of course, an emergency fund isn’t something you can build overnight. It might take a few months or years to save up for six months’ worth of expenses. But that’s OK — take your time and be consistent and you’ll get there.
Use a Retirement Account
While the well-known 401(k) didn’t come into existence until 1978, and many other retirement accounts that exist today are even newer, your grandparents likely still had some strategies in place to prepare for retirement.
So, whether you use a standard retirement account or something else, start contributing to your later years now.
“By maxing out your retirement contributions, you are building a solid financial foundation for your future,” Pavone said.
If you have a standard retirement account and are over the age of 50, you may also want to take advantage of catch-up contributions.
“Not only will this boost [your] retirement savings but it could possibly be tax advantageous,” Pavone said. “Catch-up contributions offer a valuable opportunity for individuals over 50 to accelerate their retirement savings and secure a more comfortable financial future.”
If your company offers to match your contributions, you should use that as well. As Pavone pointed out, this is essentially free money that can add up over time and help you get closer to your retirement goals.
Invest and Diversify
Investing — and diversifying those investments — may be old-school advice, but it’s something you shouldn’t ignore. It’s another way to build wealth and save money throughout your life, and the sooner you get started the better.
When it comes to stock market investing, though, don’t try to time the market.
“Think long-term,” Pavone said. “Warren Buffet is known for his buy-and-hold strategies. There is no such thing as timing the market, but instead you should shift your focus to time IN the market.”
Even though this is advice that’s been passed down through the generations, you’ll also want to consider diversifying your portfolio. This is a good way to mitigate the risks that come with investing and ensure you’re building toward a financially stable future.
Other Money-Saving Tips From Your Grandparents’ Generation
There are plenty of other money-saving strategies from your grandparents’ generation that still work today. Here are just a few more:
Never carry a credit card balance: Credit cards generally come with high interest rates, which can eat into your savings. Not to mention, those monthly payments can cut into your monthly budget. It might be old advice, but it works.
Only use cash: If you’re shopping online, this won’t work for you. But if you’re shopping in person and want to save money, leave behind your credit or debit cards and just bring cash. You’ll be forced to spend no more than what you have, and your wallet will thank you.
Write your budget by hand: You can use budgeting apps to handle this for you, but nothing quite beats good old pen and paper. A physical budget is more tangible than a digital one, something that can make it easier to stay on track with your spending and savings.
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