I think everyone would agree that saving is important but statistics show that “More than half of Americans have less than $1,000 in savings.” Saving is an important part of reaching your financial goals. Many of the things we want require us to save because most of us cannot just purchase what we want or we do not have sufficient funds to finance our retirements. It is definitely to our advantage to start saving earlier rather than later or while we are younger than when we get older. However, I believe it is not too late to start saving. I have seen retirees who have never saved in their lives learn to save $200 per month and live a more comfortable lifestyle than they would have lived without saving.
It is important to have an Emergency Fund in case of unexpected events. I always say to “expect the unexpected.” Something is going to happen. It may be a broken appliance, a car repair, an unexpected bill, a medical emergency, etc. If you do not have an Emergency Fund, then you will most likely end up spending money you have set aside for other bills. Then you will be short when those bills are due. You can get caught up in a vicious cycle of robbing Peter to pay Paul that could include Pay Day Loans and Overdraft Fees. Some say that you should have 3 – 6 months of expenses in your Emergency Fund. Others say you should have 6 – 12 months of expenses in your Emergency Fund in case you lose your job and need to pay your expenses. While I understand the reasoning behind these numbers, I also think they can seem very overwhelming to someone who may not have anything in their savings account. I think it is important to start where you are. If you do not have anything in your savings account, then I think you should start by saving $500 or $1,000. Either of those amounts would be very helpful in case of an emergency. When you get to $500 or $1,000 then keep saving to get to that 3 months or 6 months of expenses.
Another thing many people do not think about saving for is education. They opt for, or had to opt for, Student Loans instead. The need and benefit of Student Loans is evident – many would not have been able to attend college without them - but the debt is burdening and overwhelming graduates and others to the point that their dreams are becoming a distant memory. It would be great if grants and scholarships were available to everyone who wanted to go to college but that is not the case. Therefore, we need to think about saving for our children’s and grandchildren’s educations. It may be too late for us but not too late for them. There are different savings plans available that you can begin by saving as little as $25 per month.
Other reasons to save are for specific goals that we have. Sometimes people will spend a whole paycheck to purchase something they could have saved for. Christmas gifts are an example of this. Christmas is the same date every year, yet many people who give gifts do not save to buy gifts. Instead they borrow using credit cards, overdraw their checking accounts, or use money allocated for bills. If they started saving when Christmas was over, they could avoid these money challenging situations. Other goals people could save for are a down payment for a home or a vehicle, vacation, college, computer, big screen television, furniture, etc. Not only would you reduce or eliminate the interest payments, you would also save a lot of money by not having to finance many of these items. It usually costs three or four times or more to finance using rent to own options than it does to pay for an item up front. There is something to be said for delayed gratification.
One of the biggest savings goals we have is retirement. Many of our grandparents did not have to worry about saving for retirement because they had pensions and Social Security. Pensions are almost a thing of the past with about 20% or less of companies still offering it to their employees. Many also believe that Social Security will not be available in the next 25 – 30 years. These realities and possibilities make it necessary for everyone to make saving for retirement a priority. Many employees have retirement plans, such as a 401(k) or a 403(b), offered by their employers which they can contribute to and save for retirement. Traditional and Roth IRAs are also options for saving for retirement. Business owners can also contribute to 401(k)s and Roth IRAs as well to benefit them for their retirement.
Saving should be a part of your budget.
Make it an expense that must be paid.
In fact, you should “Pay Yourself First”. This means you set aside a specific dollar amount or a percentage (5% or 10%) from each paycheck and put it into savings. We can be so concerned about paying everyone else that we forget to set aside money for ourselves, for our goals and for enjoyment. We can make this easy by automating it and having it come out of our paycheck before we even see it. We just have to make sure that we do not touch that money until we reach our goal or unless we need it for a specific purpose.There are various ways you can save and various products you can use. You can save at home and use the traditional piggy bank or hide your money under your mattress. You will definitely have access to your money with these methods, but you will be forfeiting any interest you may gain and the safety of your money may be questionable. You can also save your money in financial institutions such as banks, credit unions and insurance companies. Or you can save and invest your money with the help of a financial advisor. You can save your money in a savings account, a certificate of deposit, a money market account, savings bonds, etc. Either of these options could work for you depending on the rate of return you would like on your money, how long you are planning to save, and how quickly you need to access your money when you need it. Generally speaking, all of these are pretty liquid (the availability of your money or assets) but savings accounts are the most liquid. You can access the money from a savings account whenever you want and without a penalty. Next is a money market account but there is usually a minimum amount you have to withdraw, usually $250 or $500. Next is a certificate of deposit, but you may be penalized if it has not reached maturity at the time of withdrawal so you will forfeit some or all of the interest you would have gained. Last are savings bonds because they have to be redeemed, and you will forfeit interest if you redeem them before their maturity date.
You should choose the products that best meet your needs and will help you to reach your financial goals. Whichever product you choose to use, make sure you understand it and ask questions if you are not sure of something. Get started today and begin to achieve your financial goals. The sooner you start the better.
Action Plan:
1. Research 2 or 3 different types of savings products.
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
2. Choose an amount to save weekly, bi-weekly, or monthly and begin to save for your Emergency Fund by the beginning of next month.
_____________________________________________________________