Why you should save
I recently heard a radio program which was lamenting the negative savings rate in America. The guest was an author of a book about saving for retirement and naturally had lots of opinions on the subject. As usual she was touting her book and was giving tips on how listeners could improve their financial situation and save money. Among the tips were: Setting up an automatic debit from paycheck into savings account. Only having one credit card. Using cash to purchase whenever possible. Impose a waiting period on purchases to avoid impulse spending. and doing the math on a purchase to figure out the final price with interest.
All of these tips are good, but I’ve heard them all before in many different iterations. Every book or expose or report I hear, watch, or read, gives tips such as these and emphasizes how important it is for people to save money. What none of these reports, or books, or exposes make clear is why people should save money. Well okay, they say “for retirement,” but what is “retirement” to the average 30 year old? It is forever away. People need to stop saving for “retirement” and instead save for something specific.
So ask yourself, what is your dream? Do you dream of owning a farm in the countryside? Figure out how much it will cost to buy and to run, then save money hand over fist to make it happen. Set a goal that by age 60 you’ll be able to afford that farm and have enough money to keep it running for the rest of your life. Do you dream of taking a trip around the world? Do some research. Figure how much it will cost and set a goal for when you’ll have that money saved. Do you dream of never having to work again? Figure out how much money you need to have saved so that you can live on the interest. Do you dream of making pottery and selling it? Figure out how much money you need to have saved so that you can live on it for two years while your pottery business gets off the ground. Do you dream of owning a fancy car? Figure how much it will cost to buy it and maintain it, then save for that.
The key here is to plan ahead. When Howard and I got married we had several goals. We wanted Howard to be able to earn his living creatively. We wanted to own a house. We wanted to have several children. We structured all of our spending to accomodate those goals. When Howard got a pay raise we wouldn’t raise our standard of living much, mostly we’d save it against a planned goal. Even when we had the house and the kids, we still spent carefully because we had the dream of Howard being able to make a living as a cartoonist. We did spend some money on luxuries like nice furniture and new cars, but each of these purchases was balanced against the larger goal. Each time we carefully considered whether the expense added more value to our lives than having Howard work from home would. Eventually we reached the day when Howard quit Novell. That was scary and I confess I did some second guessing about some of the things we’d chosen to spend money on. But we’ve scraped by and it looks like we’ll get to keep on going.
Don’t just save for “retirement” save for something specific. Know what your dreams are and take steps to make them reality.