Why all the fuss about saving? Unless you create an exiting reason to save, you will fail.
During a discussion with some colleagues recently, the topic of saving came up. Most people held strong views that savings were critical. Ok, but you can’t just say that without some justification.
I believe that saving for no reason is futile. There must be a valid purpose for saving. Any other approach leads to dissatisfaction and will ultimately be unsustainable.
For me it’s like weight loss. There are lots of reasons to strive for a healthy body weight: more energy, longer life, disease resistance, better sex. But in the absence of a realistic and exciting goal it simply does not happen, despite the best of intentions.
Ok, most people are aware that if we spend more than our income we eventually must pay it back, with interest. The first basic reason to spend less is to repay debt.
If you have a little extra to put away then building a cash-buffer to pay for seasonal expenses is a great idea. Energy costs and holidays can cause expenses to fluctuate throughout the year. With some experience you can plan for these and set aside enough each month to cover the peaks.
Build an emergency fund. Financial emergencies are things that we half-expect, but we never know when they will come up. Car and home repairs, and medical expenses can be managed if you can build an emergency fund. It is widely viewed that 2-6 months take home pay is adequate.
Unless you want to work forever or live in near-poverty in your golden years, paying some attention to retirement planning is a great idea. Work out how much income you will need, the amount you need to save to achieve this, and when you want to retire. From here you can ballpark the amount you need to save each month to get there. This will be the subject of future blogs.
Beyond these it’s time to think about your stretch objectives. Up to this point you have been saving for subsistence purposes; things that you know are important but don’t really get you excited about saving.
What do you want to do with your life that money can provide? Here you need to think of exciting ways to enhance your life satisfaction.
They could be anything from buying material possessions, like cars and houses, or jewelry. They could be amazing experiences that you enjoy, like vacations. You might want to start a business and need seed capital to get it going. You may want to build a charity and need money to establish your presence. It could be to retire at 50, to pay for college, or buy braces to straighten your nieces teeth.
They’re different for all of us but if you don’t commit to pursuing your outlier financial goals they will not become reality.
Let your imagination run wild to think of real reasons to save. It suddenly becomes much easier to put a few extra dollars aside when you have an exciting reason to spend less today.