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Here’s the bad news: statistics show that Americans are amongst the planet’s worst savers (the Chinese are the best.) The good news is: you can change that.
Americans’ personal savings rate has risen in recent years, but it’s still far lower than it was 30 years ago. (In the 80’s it was close to 10%, currently it’s at 3.6% – which is pretty bad!)
The importance of saving a percentage of your income regularly (monthly) cannot be overestimated. Ideally it should be around 10%. Save more if you can. You will thank yourself later!
Unfortunately, most people live paycheck-to-paycheck and also, in our culture instant gratification and a “spend-baby-spend” mentality prevails, even beyond our means. One of the first things to save up for is an “emergency fund” which should be 6-9 months of your living expenses. After that is in the bank, you can save for other short- and long-term goals.
To save up for near-term goals such as a vacation, a major appliance purchase (big screen TV, new fridge, etc.) funnel a little bit of cash toward your savings every paycheck. A professional, accredited financial planner can help you figure out how to maximize your savings and present you with powerful “Time-Value-of-Money” calculations, so you’re able to reach your short- and long-term goals. “Time Value of Money” plays a significant role in building long-term savings, because the compounding interest that you get paid on your money is a huge contributor to growing your savings.
To address longer-term goals, casting aside short-term wants and needs, have you considered that you, like most people, are not saving enough for retirement? If you are behind saving for retirement, should you take more risks to catch up? The temptation is to try to ramp up your nest egg by investing more aggressively in stocks. However, there is no assurance that a subpar decade will be followed by a superior one, so it’s a risky proposition. There are several ways to close the gap between where you are and where you’d like to be, the most effective of which is not to invest more aggressively, but to save that way.
Michael Philips, AWMA® CMFC®
FINANCIAL MASTERY WEALTH MANAGEMENT
Accredited Wealth Management Advisor
Registered Investment Advisor