Most people tend to spend what they earn. In 2016, GoBankingRates.com did a survey of a little over 7000 people which shows that 69% of respondents had less than $1,000 in savings.
Let this sink in for a minute: almost 7 out of 10 people in the U.S. have less than $1,000 in savings.
This doesn’t mean that people don’t have savings in 401k plans or IRAs, although I’ve read that 2/3 of the people who have access to 401k plans don’t invest in them, but having nothing set aside for emergencies or even for a rainy day or a future dream can be a real problem.
There is some fascinating information in this study so if you want to learn more, here’s a link for some additional reading: GoBankingRates.com Survey
But I want to talk about how to save money even if you think you can’t.
We live in an age where technology can either help us or hurt us. It’s so easy to pull out a credit card when we want something, deferring the bill until later. And with debit cards, it’s easy to lose track of what we are actually spending. Saving money seems to be the last priority.
Credit cards were not designed to be your emergency fund, yet it appears that’s what a lot of people use when emergencies occur. By having a sum of money available for you whether it’s an emergency, or so you can live out a dream, allows you to let your money serve you rather than you serve it.
So here is my suggestion. If you want to make saving money simple, set it and forget it. At just about any bank today you can open a savings account and set up a monthly deposit into it directly from your checking account. By making it automatic, it just happens. And you can usually start with just about any amount you wish. It’s better to start saving $25 a month rather than saving nothing.
Then, before you know it, your savings starts to build.
I work with a lot of people who want to get out of the corporate rat race and either retire early or start businesses of their own. This takes cash.
If you are a young person, I feel it’s important that you don’t put all your savings into tax-deferred instruments like 401ks and IRAs that you can’t touch until you are age 59 1/2. It takes money to start a business, or retire early, or stay home and raise children or take a year off. If all your money is tied up in tax-deferred instruments, your future options may be limited.
You should at least put into a 401k, for example, as much as your employer will match, but rather than invest all your savings for retirement, consider putting some of it in after-tax vehicles like savings or investment accounts. Then, if the opportunity to take a world cruise, or whatever your dream trip is, or opening a business, or any other big happy opportunity comes along when you’re 30 or 40 or 50, you don’t have to say no due to not having access to the money.
Having money available gives you more options and a sense of freedom. Too many people today are stuck in jobs they hate due to a paycheck. No matter what your age, it’s never too late to make changes in your financial habits that can reap huge dividends down the road.
Often, we only focus on preparing for the worst. Today, I suggest you begin preparing for the best!
And if you already are — my congratulations to you!