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But it’s the #1 thing required for financial independence
Saving money is one of the most valuable things a person can do for their financial future, but so many people don’t do it, despite saving being such an easy task.
So, if saving is easy to do and valuable for your future, why don’t more people engage in this practice?
Well, saving is like eating healthy.
People who consistently eat healthily do so because they know that eating healthily will positively benefit them now and in the future. Furthermore, they also realize that implementing discipline now will likely increase their chances of living a longer life with fewer health issues.
Saving and investing in your financial future are precisely the same concept.
The greatest rewards that come from saving appear after extended periods of time.
You will inevitably see your account balance grow if you save money regularly, but sometimes these numbers do not look so attractive in the beginning stages. However, if you save and let the money continuously build – without touching it – you will gain momentum, and your desire to keep saving will grow. It can take decades to see your money exponentially grow.
Saving money feels good once you’ve amassed a significant amount, but saving also feels good after you get started and keep going (try it for yourself if you don’t believe me).
Saving is paying yourself FIRST and demonstrating you care about YOURSELF enough to put some of what you earn away for your future self.
Do I Need To Start Saving Right Now?
The answer is always YES. You want to start saving for your future as soon as possible. The sooner you begin saving, the sooner you will become financially sound, and the less you will have to save later (due to compound interest).
Most people do not start saving for their golden years until they reach their 30s or 40s. When you hit 30, it’s best to have already been saving for several years, but if you haven’t, there is still hope.
You don’t have to save a big percentage of your overall income; start small.
Start saving 1% of your total income and gradually increasing the percentage.
Some people save 25% of their income, making hundreds of thousands of dollars. Some people save 50% of their income, making less than your average income earner (i.e., ~60,000/year). Some people do more than satisfactory, saving only 10% of their income or less. Everyone has unique goals.
When you start to save money, you develop a sense of security. Your self-confidence and self-esteem grow because you’re investing in yourself and prioritizing your financial health; this feels mighty good.
How Much Should I Save?
Determining how much you should save depends entirely upon you and your personal goals.
Example 1
Donald wants to save up $960,000 by the time he is 60. He is currently 20 years old right now and an entrepreneur. He skipped the whole college route and went into business for himself. He now makes an estimated $10,000 a month.
Savings Plan: $2,0000/Month for 40 Years = $960,000.00.
This is a unique situation, and this plan does not factor in compound interest, but let’s say Donald did not know anything about investing; hence, he spent 40 years of his life saving his money in a zero percent interest savings account. Well, he still reached his goal, but if he had invested his money, he would have accumulated $10,000,000-$12,000,000 after those 40 years of investing with an average rate of return.
Example 2
Terry wants to save up $300,000 by 50 to pay for a house in cash. She is currently 30 years old and brings in $6,000 every month after taxes.
Savings Plan: $1,250/Month for 20 Years = $300,000
If Terry invested her money, she would have close to $600,000 at a 6% interest rate, and the average return rate is closer to 10–12%, so do that math here; she would be sitting pretty after those 20 years.
These examples show how much you need to save per month or year, depending on your goals. Also, when you have clear written goals, you will reach your goals, especially when you know what you need to do to reach those goals consistently.
The Emergency Fund
Many people often come across the suggestion that they should always have money saved up for rainy days (a.k.a. emergencies and random life events). I love the way Dave Ramsey words “rainy day funds” as “emergency funds.”
You should have a stocked emergency fund as a rule of thumb in case of an unexpected expense or emergency (e.g., car break down, hospital/doctor bill, your kids crashing your car, job loss, an unexpected baby, etc.).
The amount you decide to have in your emergency fund is entirely up to you. You can start your emergency fund with $500-$1000; this is typically a reasonable range, but you will usually need more depending on your lifestyle and unique circumstances.
Sh*t happens, and sometimes these life events bring about a hefty price tag. It is better to be prepared than not be prepared.
An unfortunate life event can often go smoother by having an emergency fund to cover the bill. An emergency fund offers security and mitigates financial stress that may come about from unfortunate life circumstances.
3–6 Months of Expenses Is Recommended, Preferably 12 Months
Another good rule of thumb is to have three to six months of your total monthly expenses saved up in a liquid bank account to ensure that you are prepared for cases such as being laid off.
Circumstances do happen, but when you are financially prepared, you give yourself some breathing room, eliminate some stress, and provide yourself time to recover.
If your monthly expenses total $1,000, your three-month to six-month expense fund should range from $3,000 to $6,000. The bigger the fund, the more security and time you have to recover from possible incidents.
Saving = Preparation
Saving is preparing for the unknown. An unknown could be a wedding, a car, an unexpected hospital bill, a funeral, a deductible for a car accident, a house, your retirement, a new laptop, new brakes for your car, a vacation, a new car, and whatever else you can think of. It is better to be prepared than not prepared.
Having resources to utilize helps make your life easier – financially; having resources saved up also affords you more of the things you want.
Money does not create a perfect life, but it sure does eliminate issues that come about from a lack of finances.
If you start saving today, you will be prepared for your future and the unexpected circumstances in life. Mind you, such circumstances are not all negative; many favorable circumstances cost money, too (e.g., a spontaneous vacation or a business/investment opportunity).
The bottom line is that saving is a wise decision for both your present and future. You never know when you might need an extra wad of cash.
Final Takeaway
Start saving today – even if you can only afford $1 a week for starters. It’s not always about how much you are saving, but how often you are saving.
Consistency brings about results.
This content is for informational purposes only — not professional advice. Consult a qualified professional before making any major decisions.