The news over the last few years had focused much on the sorry state of the economy with unemployment that reached 9+% and tremendous turmoil in the housing and mortgage markets. No question, this great recession was one of the worst since the 30’s. There is however a silver lining to this current mess we are experiencing. We are making great progress toward savings from a rate below zero just a few years back but the trend is beginning to reverse. The personal savings rate hit a high of 10.5% in December 2012. Now it has backed down to 5.30% as of March 2015.
I have personally struggled with trying to save more money in my working years. It is easy to get caught up in the day to day and lose sight that you need to plan for the future. Of course we have no shortage of new things we want and the emergencies that tend to arrive at the worst possible time.
Making time to plan and track savings is a challenge. And it does not get easier because time seems to be moving faster as you get older. Sometimes it just seems difficult to get some momentum.
We do know we should be saving, don’t we? I am not getting any younger and I have recognized for a while that I want to retire early. The thought of shrinking the entire process to early retirement required me to turbo-charge my saving years ago. That is the fundamental element behind the ERE and FIRE crowd. I like to think of myself as an older member but not quite there.
The process has to start at some point if you wish to achieve the objective of retiring early. Of course we can hope for an unexpected inheritance, or hitting the lottery, but the slow and steady usually wins the race. Without savings and investments, retiring in our 50’s would be very difficult to accomplish.
An Opportunity for Savings
We can take a trip back to our childhoods to see the beginning of our experiences with money and savings. Did you come from an environment of frugality, spendthrift, savings, poverty, middle class, or wealth? Our background can play a large part in the money habits we display as an adult. If you came from a poor environment, your habits might make you feel you cannot save enough, fretting over every dollar. A similar environment may be a factor in spending every dollar (and more than) you earn to live a lifestyle you feel you deserve, compensating for the lack in your poor upbringing.
The bombardment of advertising today and the societal pressure of keeping up with the Joneses have created a “live for the day” or you only live once (YOLO) mentality. Why wait to buy a TV, vacation, or third car when you can buy on credit now? When was the last time you discussed your savings balances with your friends or family? This seems just a little too personal. It certainly is easier and more exciting to talk about the new Jet Ski, boat, car, clothes, i? device or other physical things we just bought.
Perhaps we are just looking for that someday to arrive? When some magical event like a massive raise at work, a new business created out of thin air, winning the lottery, or receiving an inheritance from some distant relative. That will be the day your financial ship comes in and we can start saving then!
Wrong! These are all excuses when you distill them down to their elemental form. These excuses allow you to neatly categorize your goals into the future. This of course creates a diversion for action and momentum now. Perhaps you can’t save because of taxes, the government, or you parents did you teach you about money? All excuses! We all have the ability to change our circumstances now.
I had to recognize and acknowledge to myself that I needed to gain money maturity. This is the point where I realized that it is up to me to make financial independence happen. An “ah-ha” moment came years back when I first read the book The Millionaire Next Door what a typical millionaire in this country really consisted of.
No, this was not the sports or movie stars we see on TV- believing that they are the average millionaire. It was the hardworking couple living in the same house for 30 years running a plumbing or electrical contracting business. I learned rather quickly that financial independence would not happen quickly.
The good news is it is never too late to learn. Did you know that Albert Einstein, easily recognized as one the world’s most brilliant person, did not begin to learn English until age 48? He was in his early 30’s when most of ideas that won him the Nobel Prize were generated. Learning to speak English was not an easy task to him.
3 Ways to jump start your savings now
- Needs versus wants. We must understand now that no one can have everything they want. Even Warren Buffet can’t have everything, yet he is one of the richest men in the world! He couldn’t buy the country of Canada as a new home. (not enough money and it is not for sale) There has to be a point that you determine what your basic needs are and realize that “wants” can be insatiable. I find that by counting my blessings each day and realizing that we are better off than most of this world’s population, I should be happy with what I currently have.
Do you need that new car or do really just want the new features? Certainly your old car will perform the old function: driving from point A to B and back again. Take a look at your purchasing desire before you buy and ask yourself: Do I need this or do I want this? For now, only take care of your needs.
- Set goals. Most people do not accomplish goals. Primarily there are two reasons why goals do not work; 1) we fail to create them, 2) we forget to write them down. Is this a self-defeating behavior or is it because we are lazy, feel that we will fail, or are afraid to realize our dreams? I have found it is imperative to set goals and work toward achieving them. Perhaps you want to save 15% of your salary and you are saving 2% now. How could you possibly get there?
Start by creating a goal of increasing your savings by 1% every month. What is that you say – this is impossible with your situation today? Why not try this by posting a post-it note next to your car keys that states “on X date (one month from now) I will be saving 2% of my salary”. Consciously think about your goal each day and make strides to saving more. For our example, if you have an income of $60,000 per year, these means you need to save only $1.64 more per day. At the end of the first month by a creating a small goal like this, you have now doubled your annual savings!
What about creating bigger goals? We need to be careful about creating goals that are either too easy to accomplish or are nearly impossible. If you are saving 1% of your salary and you want to be at 15%, which would be difficult to accomplish in a month without a serious change in your lifestyle. This could include moving to a less expensive place, eliminating debt, or taking a new or second job. Set realistic goals that will be a bit of a stretch; therefore they would be worth making a real effort to achieve. You will soon see that by simply writing down goals and focusing on them, great new things begin to happen.
- Form new habits. Many studies have proven that it can take as little as 4 weeks to form a new habit. Needless to say, the first day you start will be the most difficult. Ancient Chinese saying: The journey of a thousand miles starts with the first step. Why not commit to 4 weeks of effort to create a new habit that could last a lifetime? Begin by identifying a few areas you want to make improvements in. Perhaps it is trying to cut some expenses and putting more money aside for retirement. Make a commitment to you self, write it down, be very specific, and spend some time every day reviewing.
For example, I want to cut my food expenses by $150 per month. It would be good to know if this represents 10% or 50% of my monthly expenditures. If I currently spend $600 a month now and wish to save $150 going forward, that might be too aggressive. How much do I spend now on eating out, convenience food items, or groceries? You must know where you are today in order to understand what it will take to form this new habit for the future.
Visualize your new habit and write it down as described in setting goals above. Perhaps you wish to cut one time a week of dining out. Spend a few minutes each day focusing on your new habit. Notice how your body feels and your energy level. This is all great feedback as to how difficult or important your goal is on the subconscious level. Take it a day at a time and mark down notes and accomplishments regarding you new habit.
Financial Independence habits for savings
I have struggled with setting goals and creating new habits all my life. I don’t know if it will get any easier as I get older. The important thing is to continue to move ahead and then step back and see what your efforts have accomplished.
By understanding the difference between needs and wants you have made a great first step. Set some realistic and goals worth accomplishing and begin to change some of the habits that you’re your from saving.