"In the house of the wise are stores of choice food and oil, but the foolish man devours all he has." (Proverbs 21:21)
Household savings rates in the United States are at an all time low since 1970. The Bureau of Economic Analysis reports show that savings has been on an overall steady decline, with personal savings rates as a percentage of disposable personal income right around 10% through the 1970's and mid-80's, then dropping to around 6.5% in the early 1990's. By the turn of the century, those rates had fallen a whopping 4% to settle at around 2%, breaking into the negative numbers in mid-2005. Compared to nations around the world, we are by far the worst at the discipline of saving. These are startling statistics, especially given the relative wealth of our nation compared to other countries. Not surprisingly, statistics also show that compared to other nations, we lead the way in overall consumption. All that said - let me go back to the beginning and rephrase the verse above in this way:
"The wise man stores up a reserve of savings, but the foolish man live
paycheck to paycheck." (Deanna's Interpretive Version)
The American culture has become a culture of consumption, a culture of excess, and a culture of debt. We've cultivated an entitlement mentality - we think that someone owes us, that we are entitled to all the same "stuff" that our parents had (except that we want it NOW), that we deserve to live a comfortable and lavish lifestyle. Instead of learning how to be content with what we have, we've become fixated on what we don't have, or fixated on what others have, and do whatever it takes to achieve our hearts desire. We've become accustomed to spending beyond our means, spiraling further and further into debt.
We need to change our thinking! We need to learn the discipline of consistent saving, of holding back a reserve, of exercising self control, of taking personal responsibility and not pointing fingers at everyone else for our own poor choices. Live your wage, not your credit score!
What are you saving for? Well, first you want to make sure you have $1000 saved in the bank as an emergency fund. If you're out of debt, your next savings goal is to turn that $1000 into 3-6 months of living expenses...call it your buffer/opportunity fund. After that, it's for whatever you want! Saving towards a down payment on a house or a new car or a new washer and dryer or a big vacation or college for your kids, or .....you fill in the blank.
The easiest way to cultivate the discipline of saving in your life is to first create a plan and automate it. Figure out what you'd like to save, then plan how you're going to get there. For example, if your goal is to save 5% of your household income, start with 1% for 3-4 months (or 5 or 12, whatever works for you). Then bump that amount up to 2-3%, then 4%, and before you know it, you'll be at your goal of 5%! This is a great way to ease into saving without feeling the pain of the loss of income to your budget quite so dramatically! Second, make your plan automatic. Set it up as if it was a bill you have to pay, with an automatic withdrawal once a month from your account, directly deposited to your savings, money market, or brokerage account. Automatically zapping your account for the amount will help you be consistent. It's the plodders, not the sprinters, who win in the savings race!
Deanna Koffler, Nine36 Financial (936 Financial)
