Why should anyone save?
You’ve heard that money doesn’t buy happiness. That’s true. What savings buys you is freedom and security. Those are priceless, but only if you value them. If freedom and security are important to you, consider how you can achieve them.
I have great difficulty saving anything. Am I unusual?
No, you’re not. Consider whether you identify with any of these examples:
You’ve been hit by an ugly sequence of badly timed financial catastrophes, none of which is your making and many of which were not foreseeable. Everyone gets handed a disproportionate amount of grief at times in their lives.
You’re a serial procrastinator, repeatedly telling yourself there’s always tomorrow to begin anything, including losing weight and dealing with financial stuff.
You have little or no idea how you spend your income. The idea of a financial plan or budget is unthinkable.
You buy stuff because you “just want it”, it’s convenient, it makes you feel good, it’s “discounted” or a “limited time offer”. And you have little or no idea as to whether you can really afford it.
You have no emergency fund for unanticipated expenses, but you do have considerable credit card debt and a new car that was financed with a 7-year payment contract. And perhaps significant student loan debt that may take a good chunk of your adult life to pay off.
You’ve embraced the belief that personal debt is not only acceptable, it’s the only way to afford the life you want, or at least think you want.
You rationalize your lack of saving and your acceptance of debt by believing you will work until age 75 or longer to make up for it. But the reality is you have no idea the medical problems people begin having when they arrive in the 65-70-year-old age category. Talk to family members of that age and they will enlighten you.
OK – fine, I want to do better, but I’m tired of reading about silly “solutions” for saving money – I want something that will work for me.
Fair enough. Let’s start with your view of yourself, list some situations to avoid, and then give you some practical applications to get you started.
How high a value do you put on your own life and future? The higher the value, and the more hope you have for your future, the more you should be willing to trade some indulgences now for others later.
Can you afford to save? The easiest way to answer this is to take a month or two and track everything you spend money on. For most of us, the results are sobering. If there is anything left over that’s good. If not, then go over the list and determine if there is anything you can cut back on. If not, then your only alternative is to increase your income by getting a second part-time job or get a better paying full-time job.
If you want to take a more comprehensive approach, consider creating a budget.
Avoid counter-productive behaviors and people who are intent on separating you from your money.
When you have financial decisions to make, don’t make them when you’re distracted or emotionally vulnerable. Possible distractions are shopping malls, car dealerships, expensive restaurants and bars, emotional disagreements with significant others in your life, and online offers.
Spend some quiet time thinking about what you really value, and then look over your last twelve months’ credit card charges and ask yourself how well they match up. Prepare to be shocked.
Don’t be swayed by people whose job is to separate you from your money. They’re better at their jobs than you are as a consumer; these people are not your friends:
Car dealers. By starting with how much you can afford to pay a month they’ve already framed the discussion on their terms. Do you really think buying a new car is a reasonable financial decision when in 2-3 years’ time it’s already depreciated 35%? Would you buy a $300,000 house with the expectation it will be worth $195,000 in three years?
Realtors. “Buy the most expensive house you can afford, or one even more expensive since you’ll grow into it, and it will appreciate as they always have in the past”. If you believe residential housing is an investment rather than a place to live, think again, and do some reading about the financial crash in 2008 and what happened to housing prices.
Be creative and find practical ways to make saving as easy and painless as possible.
Channel money from paychecks before you’re tempted to spend it. A 401(k) is a perfect example as you don’t “touch” the money that is skimmed off the top. If you don’t have a 401(k), but you do have electronic salary deposits, divert a percentage off the top to a savings account.
If you get a percentage raise, take a portion of that and divert it to savings. Small amounts are meaningful as they add up over time with the magic of compounding. Once you establish the habit of saving it will serve you well throughout your life. By saving you’re really paying yourself – aren’t you a better investment than a credit card company?
Don’t try to do too much too soon by setting goals for yourself that are unlikely to be met.
When setting goals, think specific, general, short term, and long term. “I want to start saving for retirement” is a non-specific, long term goal. “I want to save $500 by June 1” is a specific, short term goal.
Goals should be attainable, and should be aligned with your values, not taken from some outside source.
Don’t beat yourself up for setbacks that may occur.
Rather, consider setting up rewards for yourself along the way, like splitting savings into two categories: long term, not to be touched until a clearly defined date (like a desired retirement date), and short term, for occasional indulgences when you feel you deserve a reward for being conscientious.
Share both your goals and your successes with people who support the idea of saving – friends, family members, or financial advisers. You are the best person to devise a way to make this work for you, so make smart decisions and be willing to change your approach along the way if needed.
And finally, here’s a personal view based on years of life experiences. If you’ve ever tried to lose weight by going on a diet, statistically you are highly likely to fail in the long run. Why? Because you’ve only modified short term behaviors and inevitably reverted to older long term established behaviors. Saving is no different. Both require that you find ways to make changes in attitude that you can maintain throughout your life.
Try working on your attitude – everything else will follow from that.