Eyes up Soldiers! Saving is a necessary discipline for being a good steward of money. But deciding to save requires intentionality. Unfortunately, the concept of saving money isn’t a common practice among Americans. Here are 4 critical reasons you should be “uncommon” in this case.
It may surprise you that “giving” is the number one reason to save money. I want you to think about something for a minute. How can you give to worthy causes or serve the underprivileged if you’re broke and drowning in debt? Strategically setting aside money to give to others allows you to give at a moment’s notice when someone is in dire straits.
Murphy’s Law states that anything that can happen will happen. Americans don’t seem to heed this law, as 63% of people cannot handle a $500 or $1,000 emergency (Bankrate.com). Ladies and gentlemen, it’s not a question of if rain is going to come, it’s a question of when. The water heater goes, the tires blow out on the car, the sink floods and causes a major plumbing issue. All very realistic situations that can occur at some point. You must set money aside for these issues, or else you’ll be enticed to use debt (credit card, personal loan) to provide temporary relief. Use the Jericho Force Emergency Fund spectrum as a guide: Beginner Emergency Fund = $1000 (*$500 if income less than $20,000 annually), Intermediate Emergency Fund = $3000 to $4000, Advanced Emergency Fund = 3 to 6 Months of Expenses, Expert Emergency Fund = 2 years’ worth of expenses (*Going into retirement).
Instead of borrowing (credit cards, etc.) to make purchases, pay cash by using a “goal fund” approach. According to Experian, the average car payment has hit an all-time high of $523 per month as of the 1st quarter in 2018. That’s bananas! Rather than giving the bank or finance company $523 every month plus interest, set a car budget and then put aside that same $523 into a savings account (aka “goal fund”). When you hit your target, walk into the dealership confidently and pay cash. You’ll also have more negotiation leverage. Use this same logic for buying furniture, electronics, home appliances, and planning vacations.
4. Wealth Building
According to a study by GoBankingRates, about 42% of Americans have less than $10,000 saved for when they retire. It’s time to hone in on our goal to build wealth. Retirement is not an age, it’s a financial number. The key to wealth building is discipline. Building wealth is a marathon, not a sprint. Think of the story “The Tortoise and The Hare.” Many financial experts say you should be saving anywhere between 10-20% of your income towards retirement. In the second half of your life, you’re supposed to live your “golden years”, not stress over trying to make ends meet. Let the power of compound interest work for you in investments rather than against you with interest payments to creditors.
Soldiers, something new to end on. Create an action plan for how you are going to implement saving for the 4 above reasons. What steps do you need to take to put these practices in motion? Oorah!