We all know saving money for retirement is good. Growing old is inevitable; we would all like to have financial security at retirement. However, try convincing a 25, 30, or even 35 year old the importance of saving money now for retirement 30-40 years into the future.
For the most part, when we are young and healthy, we spend our time focusing on accumulating skills, knowledge and wealth. We join the rat race; working, meeting our immediate needs and chasing the ever elusive dream to fulfill our wants. Retirement planning is often placed in the back burner year after year. However, saving money is not just for retirement, here are 4 benefits to saving money now and a few tips on how to get started.
You become more confident
Do not underestimate the psychological benefits of having savings like a 6-12 month emergency fund. Having an emergency fund allows us to pay for unexpected expenses, making us less worried about paying our bills with limited funds. It frees our mind from financial worries and gives us the confidence of knowing that we can withstand some financial setbacks.
As our confidence grows, we attract more success in our personal and professional life. More success brings more opportunities, which may then bring more income. As our income increases, we are able to save more. Relying less on salary for daily living; saving money now, allows for this.
You become more willing to take risks
Having savings provides options; having financial options is great! We can think outside the box, follow our passions and take calculated risks. Such actions can lead to significant financial rewards, but you need savings to serve as capital in starting you off on the right footing.
If you had substantial savings in your bank account today, will it change what you do? Would you quit your job and pursue another, or maybe start a business? Would you muster up the courage to ask your boss for that raise and promotion they keep passing you up for?
The point is, building savings makes one feel bold. What better time to take risks than when we are young, hopefully healthier, and have years before reaching retirement.
Early on, you find friends who share your true life values
If at a young age your life’s philosophy is ‘do not save what is left after spending, but spend what is left after saving’ you will spare yourself a lot of financial heartaches. When we are young, we tend to be careless with money and mistakenly believe that financial success means instant gratification in a materialistic world. The expression ‘keeping up with the Joneses’ becomes an embodiment and a benchmark of how we should live. We get the house, TV’s, cars and vacations we cannot afford, out of fear of missing out.
By building strong saving habits at a young age, we will attract friends who share our philosophy and life choices; thereby fostering genuine relational bonds. Healthy relationships are vital and better than constantly trying to fit in.
If you delay to have your financial affairs in order, life’s responsibilities make it difficult to make lifestyle changes. For example, you finally decide to cancel your yearly membership at the local country club; you want to save this money. You have tried your hand at golf for a few years now, and you are not getting any better at it. Plus, with your responsibilities at work and at home, you cannot seem to find the time to go. For many, the decision to cancel a membership is not an easy one, even if they are not active participants. Old habits die hard.
The hope is that by having friends that share similar values as you at a young age you will also share similar social habits, including good financial habits such as saving.
Your quality of life will improve
Your quality of life will improve because you will have less financial stress; you will be able to do the things you wish to do; and hopefully you will be having like-minded friends. Investor, philanthropist, and the third richest person in the world, Warren Buffet said, “I get to do what I like to do, every single day of the year.” From age eleven, he began saving and investing his money while other kids probably squandered theirs on candy and toys. Buffett was born with an entrepreneurial mind. The foundation for his wealth is the fact that he saved his money. He dedicated his life to investing in various ventures, translating his small savings into billions.
Now that we have discussed the benefits of saving money, here are 8 tips on how to save
- Have your bank set automatic monthly withdrawals to your savings and investment accounts.
- Save 15%-20% of your income (10% after tax dollars, 5% before tax dollars and 5% company matching).
- Try saving 50% of all windfall income i.e.) tax refunds, bonuses and overtime. Windfall income is a great way to boost savings.
- Buy used for most depreciating assets i.e. vehicles, used clothing, books etc.
- Keep housing costs less than 30%-35% of take home pay (includes utilities, maintenance and repairs). Housing costs make up the largest expenses on a budget. Reducing these costs as much as possible will free up cash that you can be used towards savings.
- Learn to graciously say no and bow out of financial commitments that you did not plan for. For example, friends heading out to a concert that you did not budget for or plan on going.
- Save for a rainy day. Strive to have a six month emergency fund to be able to cover unexpected expenses when they arise.
- Spend less on “stuff”. Spend more on friendships and never compare yourself to your neighbor. Host a game night potluck dinner with friends. This is a great way to share expenses with others and still have a good time with friends.
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