Purpose of Saving

Save for the long term. Saving and investing are a marathon. To power through saving and investing, you need purpose, patience and stamina.

As a general rule, it’s recommended that individuals save and invest 15% of their gross income into a retirement fund or funds like a 401(k), 403(b), IRA, etc. The exact amount depends on the individual, but the sooner individuals begin saving, the better.

Delaying saving until you have more money to contribute could mean less funds in the future, as your investment won’t have as much time to earn compounding interest.

The impact of compounding is greater the earlier you start saving. You’ll earn not only from the money you invest but also from previous earnings. Not to mention, the sooner you work savings into your budget, the easier it will be to live within your means and prioritize savings in the future.

No matter how little, contribute what you can to your selected plan. Any time you see an increase in salary, receive a bonus or pay off a debt, consider increasing your contribution.

“Savings is the money set aside for emergencies and major purchases like a vehicle or a house. Savings is about setting aside money for future use.”

Most Americans don’t feel prepared for retirement. Fully 58% of workers with pay of more than $100,000 indicated they are not saving enough for retirement; that percentage increases to 69% across income levels. Additionally, 18% of people who earn more than $100,000 say they live paycheck to paycheck which makes it difficult to save for retirement, according to a survey of 8,000 workers by global advisory firm Willis Towers Watson. Frankly, the problem is simply that Americans aren’t saving enough.

Experts say there are ways to up your retirement savings, even if you’re feeling financially stretched. First, look for ways to slash your current spending to free up extra cash or consider a side gig to earn more.

Saving money takes effort and discipline

“Do not save what is left after spending but spend what is left after saving.” Warren Buffet

Saving does requires self discipline and desire to save and to not spend more than you earn. That lack of frugality could explain why 58% of Americans have less than $1,000 in savings. But, saving money can be simple when you develop the correct mindset and create positive savings habits. Add, savings can get easier to accomplish when you actually know where your earnings go month after month.

Automate your savings

Automate your savings is about setting aside a portion of your earnings that would go directly into either a bank account or a retirement plan, depending on your financial goals and plan. You can also set automatic transfers from your checking to savings accounts to fund important goals and create automatic bill pay so you never forget to handle a fixed expense. With an automatic transfer of a portion of your earnings, you’re effectively paying yourself first as a means to save money, and at the same time, you will not really miss the cash you’re socking away.

Reasons to Save and Invest

If you require motivation to save money, make a competition or game out of saving money. By making it interesting and competitive, saving should become more deliberate. Thus, a good way to boost your cash reserves is to find someone who’s willing to engage in a savings contest.This will encourage you to save money that will put you on the path of buying yourself more financial security.

Another trick to staying motivated and on track, set small saving goals and milestones that will give you a sense of progress. For example, make a point to celebrate saving and investing accounts reach $10K, $25K and $100K in assets.

You cannot save your way to financial independence and wealth. The only reasons to save are to create an emergency fund, to set aside money for a short term major purchase like a house or vehicle, and to invest it. Saving money will put you on the path of buying yourself more financial security.

The difference between saving and investing comes down to accumulating money vs. making money grow. Both are important and it essential to understand how to make saving and investing work together. It’s important to put your money to work for you. Put your saved money into investment accounts and never use these accounts for anything, not even an emergency. This will force you to create an emergency fund.

Avoid debt that doesn’t produce cash flow

“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.” Albert Einstein

Make it a personal financial rule that you will never use debt that doesn’t make you money. You should only borrow money to purchase assets that increase your income or create positive cash flow. Financially savvy people use debt to leverage investments and grow cash flows. Financially non-savvy spenders use debt to buy good and services that make others richer.

Debt is one of the big three destroyers wealth and can wreck havoc on one’s ability to achieve financial security and independence. It can quickly get out of hand especially when people habitually spend more than they earn to live a lifestyle they cannot afford. Debt can compound to the detriment of a spender if consumers fail to pay off credit card balances each month.

References:

From Gratitude to Greatness: Brownlee Global's Path to a Purposeful Life

Guide and Educate Individuals How to Build Long-Term Wealth, Better Manage Their Money, and Achieve Financial Freedom

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