Saving Happens When Expenses are Less Than Income
My maternal grand-mom was a stickler for saving money. She lived close by, so we visited often. Her house was the family hub. She’d cook Sunday dinner. As we all gathered around her dining room table, or anywhere there was a free spot, she would often ask each one of us grand-kids two things: (1) were we saving, and (2) how much had we saved.
As we grew older, subsequently went to college, started working and having families of our own, we more fully realized the wisdom in Granny’s advice. The need to save became much more pressing since it was linked to our ability to build financial wealth. Granny’s question underscored the importance of living within our means, paying cash as much as possible for desired items, and being prepared for the unexpected.
Saving is an important life lesson. Learned early and done consistently, even a small amount saved can reap huge benefits over a life time. Compound interest can be a formidable opponent, or one of our greatest financial allies. Unfortunately, things often get in the way of consistent saving.
American Saving Stats
The percent of disposable income Americans save declined from about 11% in the 1970’s to about 1% in 2009. (See the chart by the Bureau of Economic Analysis.) Four interesting facts emerge from this graph:
- The U.S. personal saving rate seems to be cyclical. There is an increasing savings trend during times of U.S. recession, where it otherwise decreases;
- American savings trends are on the rise since 2010 as confidence in the economy declines; and the
- U.S. personal saving percentage of 7.5% of disposable income in 2010 marks a rebound back toward the high of 11% in the 1970s.
- Current second quarter 2011 saving rates range from 5.0% to 5.5%, possibly indicating an increasing confidence in the economy.
The years just prior to the Recession of 2008 took a heavy toll on the savings rate, with 2008 being among the lowest for decades prior. Since about 2009, the savings rate has been on the rise. Pundit John Maudlin is still questioning whether we’re headed for Recession 2011. However, full blown U.S. economic recession in 2011-2012 may lead to even tighter purse strings and continuing savings rates increases.
CNN Money’s Katy Byron puts an interesting twist on savings activities post-Recession in her article “Was the Recession a Good Thing”. Byron says tough financial times are motivating folks to be more conscious of spending and to protect their savings.
Does this sound like you? Have you been squirreling money away since the news of financial crisis? Are you avoiding spending on bigger ticket items until more consistently positive financial news arrives? Or, do you tend to not pay much attention to your spending and have no spending plan? Although the more recent stats indicate U.S. saving is on the rise, there are barriers which keep some individuals from achieving their saving goals.
Some Obstacles to Consistent Saving
There are many reasons people avoid saving money. Do any of these strike a chord with you?
- Out-of-control spending & frivolous consumption
- Household expenses exceed income levels
- Unplanned medical expenses
- Sudden job loss
- Having no spending plan, or
- Lack of motivation to save
But, we can’t use these circumstances as excuses. Having the discipline to create an achievable spending plan and developing a saving habit can be the tools you use to get beyond unfortunate situations and traverse those obstacles to saving.
Aside from the statistics, saving money is a mind set and a habit. It only occurs when you figure out ways to spend less than you earn. Creating a budget is a great start to becoming a saver.
5 Reasons to Save Money
A lack of knowledge on how to control our spending and having insufficient motivation to save, lead to paycheck-to-paycheck (P2P) living. A great way to break the P2P failure cycle is to internalize the “Why”. In other words, you need to determine for yourself why it’s important to save money. Daily thinking about your personal reasons for controlling spending and building a great savings account creates the motivation you will need to reach your savings goals.
Proverbs 22:7 is an encouragement and instruction on getting in position to rule. Imagine yourself being a lender!
Proverbs 22:7
The rich ruleth over the poor, and the borrower is servant to the lender.
Now, some questions for you:
- Do you know why it’s important for you to save?
- What could you achieve as a result of adopting the saving habit?
- How would you feel knowing you had a healthy retirement fund and 6 to 8 months of living expenses tucked away and earning top interest?
So, let’s discuss 5 Reasons why we need to save:
- Rainy day emergency fund
- Accomplish a savings goal
- To have seed to sow
- Create financial wealth
- Security
When you begin to turn your financial situation around, and as you gain success, you reach your savings goals. But, one caution: it’s easy to rest our trust in that accumulation. But, Matthew 6:24 warns:
Matthew 6:24 No one serves two Masters
No one can serve two masters; for either he will hate the one and love the other, or he will stand by and be devoted to the one and despise and be against the other. You cannot serve God and mammon (deceitful riches, money, possessions, or whatever is trusted in). [AMP]
This scripture encourages us to continue to keep God as our source of strength, not an accumulation of money. Now, let’s talk through some specific methods we can use to save money.
Saving Methods
- Track expenses and know their quantity and timing vs. income
- Create a spending plan called a budget
- Consistently spend less than you earn.
- Set savings goals
- Accomplish those goals
- Create new savings goals
We’ve discussed statistics about saving, obstacles to saving, and methods for saving. Now to the nitty-gritty: the Saving Tools you need to be the lender and not the borrower are as follows:
Try out these Saving Tools
Tool#1: Download my FREE 10 Step Guide to Creating a Budget. This little booklet is packed full of tips for creating a budget.
Tool#2: Capitalize on a Change Jar.
Start a Change Jar
A change jar is an amazingly subtle saving tool. All the family members can participate. Find an empty container and put all coins aside. If you find coins dropped under the sofa cushions, put them in the change jars. When the jars are full, take them to be counted. The fragments of dollars accumulate quickly.
Watch those high coin-counting fees, like on the CoinStar machines at the grocery store. You may be able to get your bank or credit union to count your coins. Check ahead to obtain procedures and fees. There’s always the “DIY-method”. Your bank teller typically has coin wrappers. You can wrap them yourself and avoid any counting fees.
Tool#3: You Can Beat Dead-Beat Savings Rates
You can earn more interest at online banks than traditional banks, such as SmartyPig, CNB Bank Direct, Ally Bank, and Clear Sky Savings Bank. You will need to compare the interest rates, minimum balance requirements, and any bank account requirements like a maximum number of transactions. A little comparison shopping will do the trick. Smarty Pig is my personal favorite.
Many of the online banks also offer automatic withdrawals. SmartyPig, for example, will allow the saver to set up multiple savings goals with automatic withdrawals on the day(s) of the month desired. These withdrawals must be tied to a regular bank with, for example, a checking account . Emails are sent when withdrawals are made or savings goals are reached. A goal can be closed and the cash sent back to your regular bank or placed on a gift card to prominent merchants.
Tools#4: Put It on AutoSave
Regular banks have savings programs as well. Just check with your account representative for details. The savings transfers can be automated. Funds accumulate and can be tracked via online review, ATM or at the teller counter.
Tools#5: Greater Returns, But Larger Minimums and Longer Terms
As your financial wealth increases, you will certainly want to get greater and greater yields, or returns on your money. Consult your financial adviser for recommendations on your personal finances. Banks which give larger returns will often require large minimum initial deposits.
There are varying degrees on liquidity. Certificates of Deposit payout at varying rates depending on how long the may remains on deposit.
Savings Bonds require waiting on maturity dates which are much longer. Check out the link for some details.
Finally, I invite you to share your thoughts and ideas about savings. Please leave a comment to share your experience.
