We are all familiar with the concept of saving money. It is money set aside for unforeseen circumstances. The recent global pandemic has brought the importance of your emergency fund to the forefront.
“Do not save what is left after spending, but spend what is left after saving.”
— Warren Buffett
That piggy bank we remember from childhood wasn’t just a place to store our birthday money and spare change: it was a lesson, a way our parents encouraged us to get into the habit of saving. Many parents even go so far as to deposit half of any monetary gifts their children receive directly into a savings account, just to drive the point home. Adults who took that lesson to heart might set up automatic deposits into long-term savings or retirement accounts from their paychecks every month — a modern mechanism for implementing this age-old lesson.
Many new investors come to their financial advisors with a number in mind: “I want to save $1 million before I retire.” There’s even a movement known as FIRE where you work as hard as you can, save as much as you can, and try to retire before age 50. No matter what your motivation, it’s important to commit to a regular savings plan to protect yourself and your loved ones — no matter what the future brings.
What is the right balance?
We tend to think that the person saving more is doing a better job of managing his or her money than the person saving too little. Extremes won’t necessarily benefit you in the long run.
- Spend too much enjoying the now, and you might end up having to work much longer than you want to — maybe even all the way through retirement.
- Save too much too early, and you and your family might miss out on the experiences that you deserve to enjoy with your hard-earned money: family vacations, a nice home, creature comforts, and culture that will enrich all of your lives.
New retirees who have spent their lives stuck in “savings mode” often have trouble transitioning to the reward mentality that should provide for a meaningful retirement. These retirees worry so much about running out of money that they often neglect their own wants and needs, to their emotional and physical detriment.
How can I achieve my savings goals?
The easiest way to earn money is to stop spending money. The last few months have shown us what is necessary and what truly matters in our lives. Start cutting back on things that are not needed. The money saved can be placed into a savings account each week. The account will continue to grow as you continue to cut out unnecessary spending.
Another way to prepare financially for the future is to pay down debt. With less debt, there will be more money to add to the savings account. Each year the savings account will grow as more money is added to it.
Families should try to spend money sensibly. For instance, a house or automobile should be within their particular spending budget. Remember the true cost of owning a home or a car includes more than your base payment. Insurance, furnishing a home, and regular maintenance should be factored into your decision to purchase or not. The initial cost AND the future cost should be considered.
How do you find the balance?
How do you find that balance between enjoying today and preparing for tomorrow?
First, ask yourself if your rate of savings is in line with your reality. Are you saving so much that you’re not enjoying life as much as you could be? Are you hovering around that 3 percent savings figure, telling yourself that you’re putting enough money away when you know, deep down, that you’re not?
Consider making an appointment with a financial advisor to talk about your financial goals and your vision for a dream retirement. Work together to find that saving/spending balance that’s going to align your savings with your reality, and hopefully, your goals and dreams. Find that sweet spot, and your money won’t just be numbers on a balance sheet. It will be yours.