The Prudence of Saving

We have all heard the saying, “Save for a Rainy Day”, but how many of us or others actually save what we should be saving to secure our financial future?  We all know that we should save regularly in order to build some sort of nest egg and on top of that an emergency fund.  The good thing about actually saving is that as you save more and more, you can actually build up momentum. This is especially important if you are saving into an investment vehicle that is paying you in the form of compounding interest on your money.  For a very good explanation of compound interest, please see my post “The Magic of Compounding Interest”.

If you were to do a census of the financial well being on the planet, you will find that most of the world’s population are spenders as opposed to savers.  What category do you fall in as the latter is the most important for your financial well-being.  The wealthy usually have gotten wealthy by the fact that they are mostly good stewards of money.  Of course, there are exceptions of the wealthy, there are those that may have won the lottery or those that have inherited their wealth, but those that have made their wealth from scratch know the importance of money and the prudence of saving.  Have you started saving for your own financial future? In thinking of saving properly, you must think like a ‘pack rat’.  Have you ever watched a Discovery program on these mammals?  They simply grab everything that they can and use what they need and hoard the rest.  This is how we have got to be with our money, it’s just that important.

Fast Track to Saving

First off, you need to set aside a separate account for saving, preferably one that does not have a debit / credit card linked to it and has withdrawal stipulations attached to this account.  You should also attempt to get an account that bears the highest form of interest out there.  Make your savings automatic and you should strive to save at minimum 10% of your income, regardless if it’s monthly, weekly, daily or whatever.  Set up a standing order on that account so that it will pull from another account at a set time (say monthly) if your income is steady as in a full time job.  If your income is more sporadic as in a business owner, you should calculate your savings of 10% manually and deposit to this account before you pay out anything.  By making it automatic, it will become habit just like spending may be for you right now.  Think of your savings approach as a bill that must get paid regardless every single time and you will be successful at it.

Build Emergency Funds

One of the other important savings for your financial future is to build your emergency fund.  It used to be thought that you should have at least 3 months income saved for your emergency fund.  It is getting more common as a suggestion to save at least 6-8 months or more of your normal living expenses.  This would include such things as your mortgage, utilities, groceries, entertainment, car payments and so forth.  If you can accomplish this, you are well on your way to building wealth and living a life of financial freedom.  To your success!

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Category: Financially Elite Blog