Saving Money — Why it’s Important – Part II

In part one of this article, I wrote that many of us are not prepared for financial emergencies.  According to Bankrate.com,  “28 percent of Americans say they have no rainy-day fund” and 49% “don’t have enough emergency savings to cover three months’ worth of expenses.”  In other words, even with the uncertainty in today’s murky financial domestic and global environment, we’re still not preparing ourselves for future emergencies so there’s no plan in place for unplanned expenditures. Many are still not saving money.

This article addresses some common reasons why Americans don’t save, and offers possible remedies to get started.    Let’s get right to it.

There are a multitude of reasons for not saving, most of which can be categorized into five main areas.  These more typical reasons for not saving are:

1. We are unable to afford to put money aside for savings because we simply don’t have the funds.
2. We have an expectation of earning a better salary in the future, so our intention is to start saving at that instead of now.
3. We think we’re too old/young to save.
4. We have the idea that savings accounts don’t earn enough interest, so why bother to set aside funds now.
5. We are focusing on paying down debt before we start saving.

So, are these considered valid reasons or excuses that keep us from saving money?  Are circumstances within our control or are they out of our control?  If we stick to dealing with the things that are at least partly within your control, we will mitigate much of the stress and worry.

1. We need to have a current budget because then we will know our  monthly expenses.  If we are unable to save due to current expenses that are too high, then consider selling whatever it is that is a drain on the budget.  Maybe there are several things that can be changed right now or this week.  Review the variable expenses to determine if they are really necessary or if they should be done away with.  Involve family members because these spending choices will impact them, too.  Realize that this is an ongoing project that will impact your family’s financial future.  Consider that saving is not an option.  Look for ways to conserve, minimize, and simplify the current lifestyle, and do it as soon as possible.
2. If there is an expectation of a higher-paying job in the future, it’s important to not make purchases based on that expectation.  An article in the Los Angeles Times reported about potential salary levels for different industries, however, there’s always the possibility that the job won’t come through or that the salary levels aren’t the same in all areas of the country.  Even if the job opens up, it would be much better to not have expenses that are based on future earning levels so that more could be diverted into savings.
3. As for being the wrong age, there’s never a bad time to do the right thing.  According to Albert Einstein, compound interest is “the eighth great wonder of the world,” which is a huge benefit to anyone’s financial standing regardless of their age.  Even small amounts deposited into interest-bearing accounts on a regular basis will grow into larger amounts over time.  Ideally, savings should be viewed as a lifelong habit for financial strength and solvency – whatever the age.
4. This brings us to the next idea that there’s not enough of an earning power for savings accounts, money market accounts, and CD’s, so why even put money into them?  It’s true, rates are deplorable for interest earning accounts.  However, don’t let that be an excuse for not doing the right thing.  Remember, it’s not only how much we earn (or do not earn) in interest.  It’s also the habit of preserving some of our earnings for our own safety and stability.  If we don’t have some nest egg in the form of a liquid savings account, then we will not be prepared to take advantage of financial opportunities in the future.  Today’s rates are – well, temporary.  Focus on what we can control, and prepare for the future.
5. As for paying down debt, we know that debt is a detriment to overall financial health and wealth.  According to NerdWallet.com, American households have $15k in credit card debt, $149.5k in mortgage debt, and $32k in student loan debt.  These debt balances stifle household opportunities for current financial stability and future wealth because it eats up limited resources that would otherwise go to savings.  For both current and future reasons, it is important that we designate at least some funds for savings.  If we only concentrate on paying debt, then we are not focusing on safety or future wealth.  Pay down debt AND save so that financial benefits will grow at a faster pace.

To summarize, having a systematic way to designate funds for a savings vehicle is an important step towards growing financial wealth.  If family members are committed to paying themselves first, then they are more aware of current financial standings, including short term and long term obligations. This lessens possible overspending and helps us find ways to minimize expenses.

I’d like to hear your comments and what tools you’re using for a savings tool.  If you’re one of the few savers, what processes do you use?  What are the “next steps” planned for the funds?[printfriendly]