Do you remember having a piggy bank as a child? I do. Mine was red and made of plastic. My mom wanted to teach me the habit of saving money for buying something I wanted. It could be something simple like a rubber ball or comic books but it would be covered out of the piggy bank. I had to learn to wait until I had enough money to buy what I wanted. Now there is a skill we need today! When I gave my money to the cashier I felt all grown up.
In addition to teaching me about savings, my mom also modeled the aspect of saving money for what was important. In her case, she felt the most important thing she could leave me was an education so she was putting money away for college. I still remember the day in 1984 when she pulled $3,000 out of her savings account to pay for my first car (a flaming 78 Dodge Colt :-)) which was intended to take me to and from college.
However, even with the great lessons and example I did not apply those principles in my life once I finished college and joined the work force. Because I had the luxury of a great income, saving money (which had been important growing up) became a much lower priority. It was not important so it did not get done. I had to rediscover through some hard lessons that a key aspect of any successful financial plan is to have a consistent approach to saving money. This has to be a priority. The great motivator Zig Ziglar has said: “If you do the things you need to do when you need to do them, then someday you can do the things you want to do when you want to do them.“
So why save money? Here are some reasons:
- Emergencies: These are unexpected expenses that cannot be covered within your normal monthly cash flow plan (budget). Only 32% of Americans could cover a $5,000 emergency with cash and without going into debt for it. A fully funded emergency fund should cover 3 to 6 months of expenses.
- Large Purchases/Expenses: These would cover savings for replacing a car, taking a vacation, Christmas gifts, or a down payment for a house. Typically in America, people pay for these expenses by taking on debt and resigning themselves to pay interest.
- Long Term Goals: These include saving for college and retirement. 53% of working Americans have less than $25K in retirement savings. 97% of people think saving for college is important. Only 3% actually do something about it. Where are you?
So it looks like what most people do in America is: fail to prepare for emergencies, rely on debt for large expenses, and neglect long term planning. Is that where you want to be? Or do you want to be wise? Being wise by saving money is a sure sign that we have grown up. A few years back I was like most Americans. But I have rediscovered the wisdom of saving money. Just this week we encountered a major car repair. A while back, this would have been a major crisis and it would have been covered by Visa or Master Card. This week it was just a minor annoyance because we had the money in savings to deal with it. I felt all grown-up again.
Let me show you how to make savings an effective component of your financial plan. You too can save and be ready for emergencies. You can plan for your long term goals and do the things you always wanted to do. There is help and hope for your finances.
“In the house of the wise are stores of choice food and oil, but a foolish man devours all he has.”
Proverbs 21:20 (NIV)