One of the secrets to living a long and happy life is to save 10 percent of your income for the rest of your life. If a person can save 10 percent of their income when they are a teenager, they are smart. If a person can save 10 percent while going to college and not incur student loans, they are brilliant. If a person can save 10 percent up and through their working years and into retirement, they are an absolute genius. Which one are you?
Take the example of a person you work with who always comes to a scheduled meeting late. That is just them. They are late, late, late all the time! Ask yourself why? To me it is a habitual thing. They just don’t plan to be early.
So it is with money. Many people just don’t plan to save as much as they should. Why is it that most people don’t have money saved for an emergency? To me it is a habitual thing. They just never got in the habit of doing it, so they have no plan to secure it. In addition, they don’t save money into the right categories. Not only should you be saving 10 percent of your income, but you should split that savings into three categories:
- Long-term (Retirement)
Nothing will derail a long-term retirement plan quicker than putting all your eggs into a deferred investment program where you have no access to liquid funds. Break off some of your savings into a liquid passbook savings account that you can get at in case of an emergency, because they are guaranteed to happen. If you have nothing with which to replace the broken water heater, for example, you will put that expense on a credit card and incur further debt. Piled up debt will eat into all that long-term retirement money when it comes time to withdraw it. And on top of that, it’s not likely that the conservative funds you are invested in with your 401(k) or other IRA program are going to give you a rate of return greater than the rate of interest you are paying on your debt.
Another event that’s sure to happen will be emotional spending, where you spend money for nothing more than pleasure or impulse. There is nothing wrong with this, if you have planned for it, because this impulsive spending is bound to happen to all of us. The problem is when you don’t have any money saved for such events in an emotional savings account. You see a new pair of shoes you really must have and purchase them on impulse with guess what — that’s right, your credit card. This kind of spending without a liquid savings plan to account for it will, just like emergencies, pile up debt to the point that your retirement income is in jeopardy.
Breaking old habits — like not putting any money away or worse yet, not putting that money into the right savings categories — is hard to do. But it can become easier if you forecast yourself into retirement and envision what it will be like if you haven’t saved for emergencies, emotional needs, and long-term goals.
We all can learn new tricks, even if we are old dogs. Don’t give up. Read the book, MONEY: What Financial “Experts” Will Never Tell You” for some great info on how to start saving today, even if it’s only 1 percent, and working your way up to the magical 10 percent amount — a savings amount that truly will affect whether you live a long and happy life, or not.