The Whys and Hows of Saving for Financial Independence

Saving for the future and financial planning is important – in fact, it’s not an option if you want to live stress free and secure.

Is saving a luxury that you just can’t afford? Are there far too many other draws on your income – from the needs of your children to that vacation that you so desperately need? Squirrelling away for retirement just isn’t a priority, and for many people it just doesn’t seem to be possible. Putting away that idealized ten percent of our income seems to be something that most of us would like to do in a perfect world, but the truth is that the world is never going to be perfect. That ten percent seems like a lot, but it’s a great starting point. There’s no point in putting it off. The time is now! You can do it!

The Whys of Saving for Financial Independence

You can manage the stormy times of life, the overwhelming times that make millenials and baby boomers alike feel out of control. The biggest reason to master the art of saving is so that you never feel out of control or at the mercy of life. With just a bit self discipline and some planning, you’ll never have to worry.

Getting motivated to save is a huge part of the puzzle. Everything that we do is because we get some payoff for it, whether that be the joy of a new TV or the satisfaction of knowing that we’ve provided for the future. Unfortunately, most families today don’t take savings seriously. When financial times get tough or when there is big need like a home or a car repair, savings are often the first thing to go. That’s because they don’t see the benefit of preserving that nest egg for the future, and without a payoff there’s not much motivation.

From 1973 to 1993, people saved an average of ten percent or even more of their income. As time marched on, that rate dropped lower and lower. In 1999 the rate was as low as 3.6%, and by 2007 it was actually negative 1.4%! Yes, people had begun to actually spend more than they saved. Though there were some tax raises in that time period, the most prominent reason is that people took on more credit card and loan debt than they had before.

The sheer nature of those numbers are enough to make most people rethink saving, but here are three other compelling reasons to save, the “whys” that will get you motivated to make it happen.

1.  The next generation

If you have children, this is a powerful motivator. What will happen to your children if you lose your job? Or if some emergency were to come up? It’s not a question of if these things will happen to your family, but when. You have the power, through saving, to ensure that your children don’t feel the stress of financial difficulties.

Another point to keep in mind that your children will follow in your footsteps, and that if you’re not able to save effectively that they’re unlikely to be able to conquer the process either. Talk about saving money to your children, keeping an open dialogue is the only way to instill the right values for the future. A great way to engage children in the saving process is to match their saving, allowing them to put more away and to see those benefits.

2. Exponential growth

Saving builds upon itself. Often getting started is the hardest part, but once you get rolling you find that your savings actually works for you! What if you could make money without doing anything? You can! Thanks to the beauty of interest, saving is the gift that keeps on giving.

3. Reach your goals

Saving lets you take the reigns of your life, allowing to reach the goals that you’ve set up for yourself. Always wanted to invest? Saving is the way to get there. How about buying a second home? You can do it with saving. This is the tool that no one talks about, the key to getting the things that you want.

4. Taking care of you

Simply put, you deserve it. You deserve the peace of mind that comes with saving. You deserve the easy and secure retirement that saving affords. You deserve to feel comfortable and proud of the saving that you’re doing. You deserve to be independent and confident in your financial future – saving and personal finance management is the way to get there.

The Hows of Saving

Knowing why to save is only half of the puzzle – the other half is understanding how to save.

1. Pay yourself first

Think of saving as paying yourself, even if it is your future self. Being consistent is a challenge, so make it easy! Set up an automatic debit so that a set amount of money goes into savings every pay day. The less you have to think about this process, the more likely you are to succeed. You might be tricking yourself into saving, but if it works it works! This is a great technique for people who aren’t naturally savers, allowing them to take themselves out of the equation.

Waiting to see what’s left over at the end of the month is almost always a recipe for disaster. You’ve got to take care of saving first, before anything else. You can juggle the rest after, but if you don’t put the savings away first then you’re most likely going to find that there’s nothing left at the end of the month.

2. Don’t offset saving

Are you playing games with your saving? A big danger with saving is the risk of offsetting – letting one hand do something without letting the other one know. It’s not useful to anyone to put two thousand dollars in a savings account only to turn around and up their credit line to compensate for that! By doing that you haven’t saved a dime. When you’re saving, it’s critical that you actually put that money away without sacrificing your financial health in other areas.

Your income has got to be more than your output. If your current expenditures outstrip your current income, then you’re running a deficit and not matter how much you juggle the numbers, you’re not really saving. That includes carrying a balance on credit cards, racking up a car loan, adding a second mortgage, etc. Be honest with yourself about offsetting and you’ll be better able to reap the rewards of saving.

3. Set it up properly

Savings should be deposited directly into a separate account. Don’t rely on your standard checking account for long term saving. First off, you’re going to find that you don’t get the best return there. Secondly, you’ll find that it’s easy to dip into that account for the wrong reasons. Talk to your financial advisor or planner about the right kinds of savings to help you get a high yield while putting at least a few roadblocks up that will help you to keep from spending any of that money. These might be waiting periods or the lack of ATM access to the account, etc.

Don’t make setting up the right account be a roadblock to your success! There is no perfect way to save, and putting something away anywhere is better than doing nothing.

Smart saving doesn’t have to be hard, but it does take thinking ahead. Understanding the hows and whys will make saving that much easier and more accessible, allowing you to do more with your future.

For help and advice on how to save for retirement, call the financial experts at Morgan National 1-866-595-3533. For more information on retirement plans, visit “Retirement Planning” page on this website.