Living$Wise begins with saving money. I just read an article regarding the state of personal finances in America, and I was disappointed to learn that the majority of Americans have no savings and are living month to month with credit card debt. This problem affects people of all colors, ages, and socioeconomic backgrounds. Bad financial management provides poor results regardless of income level. According to studies, three out of every four working Americans live paycheck to paycheck. It’s easy to dismiss the data because those who live paycheck to paycheck don’t appear to be poor. There are numerous ways to conceal their genuine state. We’re not talking about the destitute or the ignorant; we’re talking about regular individuals who have acclimated to this way of life.
In America, there is a personal financial crisis. The majority of Americans live over their means. It is reported that 63% of working-age Americans have little to no savings. Most people do not have formal money management training are forced to learn on the job. “Thirty-one percent of non-retired respondents reported having no retirement savings or pension, including 19 percent of those ages 55 to 64,” according to a Federal Reserve survey. With nearly one-fifth of individuals approaching retirement having no retirement savings, it’s no surprise that many respondents (40%) mentioned a lack of money as their worst financial regret, and another 36% expressed concern about not being able to retire.
The majority of people believe they do not earn enough money, which is a huge hindrance to saving money. It doesn’t matter how much money a person makes; it will never be enough for them. It’s been said that it’s not how much money you make that matters, but how much you keep. I read a story recently about a refugee who migrated to the United States with no skill and didn’t speak English. He managed to save nearly $50,000 in ten years from welfare payments, recycling cans, and odd jobs. Where there is a will, there is generally a way. The formula is the same regardless of who you are: save first, then spend what’s left.
How do you make saving money non-negotiable? Living$Wise recommends that saving money becomes a priority with a written plan and a defined strategy. A saving plan creates anticipation and expectation. You actually begin to look for positive results. Pick a percentage (example: 10%) of every dollar you earn. Put a percentage in a retirement account (401K, IRA). Contribute regularly to an employer-sponsored program or an IRA. Saving only $1,000 tax-free a year for 40 years with a 5 percent yield will accumulate $127,840. Saving $4,000 a year, in the same way, will accumulate $511,359.
Put a percentage in an interest-bearing savings account (Emergency Fund). Experts recommend keeping at least three months’ expenses in a reliable, liquid account. Most importantly, do not keep savings in a checking account, which pays no or low interest and is too easy to access for current consumption.
Save for major purchases. It is also a way to avoid debt, save money on interest and other finance charges, and reach a goal without having to compromise on quality, price or any other influencer. There is a certain sense of achievement and even power when you “have the money.” Saving for a specific goal instills the discipline of saving generally. It encourages wise decision-making on purchases. People tend to “think” more about how much they are spending and on what if they are using “real money” as opposed to a credit card or a loan proceeds check.
Make savings automatic. Put away money for things you want to do in the future before you spend money on paying bills or buying discretionary items. Set up an automatic savings plan that directs your money into the appropriate savings accounts. You will have slightly less money to spend, but you’ll adjust to a new spending habit while making progress on your saving goal. Another way to save faster is to put all unexpected income directly into savings. If you receive a bonus or a cash gift, put all or most of that money toward saving for a goal, an emergency fund or a retirement account.