Pay Your Future Self by Saving
Confession, I am horrible at saving! In fact, I use to scoff or look down on people who saved for a rainy day or retirement. I'm sure I could point to a few reasons for this limiting belief. One being that I didn't grow up in a family of savers. To this day, my 55 year old mother doesn't have any savings or retirement account. I also acknowledge that my criticism of others was meant to mask my own shame and guilt around not saving.
Even after reading investment books like "The Intelligent Investor" by Benjamin Graham; "MONEY Master the Game" by Tony Robbins; and "The Snowball"(a Warren Buffett biography) by Alice Schroeder I FAILED to change my beliefs around savings. On an intellectual level, I knew why to save, how to invest conservatively, the value of having a rainy day fund, and the power of compound interest.
Why then, at the time of starting this financial intelligence challenge, do I have no rainy day fund, and one months worth of contribution into a retirement strategy? Because, knowing a thing and doing a thing are two separate things. As the saying goes, you need to walk your talk. You also NEED to acknowledge that these things are necessary and vital to living a harmonious life. It's been hard for me to face these truths and look at my own shortcomings. Nevertheless, it has enduced a sense of ease because now I know what I need to work on - Cultivate the habit of savings.
Truths I Invite You to Acknowledge
- You will need money for future emergencies or unexpected expenses.
This is the purpose of having a rainy day fund. Start off small. Open a high-yield savings account (1% interest). Then save in steps: $100, $250, $500, $1,000, etc. Aim for a rainy day fund that would cover 3-months worth of living expenses. Then work towards 6-months, and eventually 12-months. (I will be starting off small myself, and will keep you apprised of my progress.)
- You will need money for retirement.
It is unreasonable to expect to work for 30-40 years and then live for an additional 30-40 years on social security alone. You need to have a retirement strategy that is tax-efficient, secure, and earns enough interest to beat inflation. The cost of waiting is huge! The longer you wait to start building your retirement nest egg, the harder it will be to hit the $1,000,000 milestone.
Example: Say you want to have $1 Million in your retirement account, and let's say that retirement account earns an average of 10% interest per year. Here's what you'll need to save per month.
Start at age:
25 years old - $160 /month
35 years old - $440 /month (This is where I'm at.)
45 years old - $1,317 /month
55 years old - $4,822 /month (This is where my mom is at.)
60 years old - $13,200 /month
Take a moment to consider where you fit in in this example. Now, take a moment to feel how much harder it will be if you continue to wait to plan and save for retirement.
- There is about a 70% chance that you will need long-term care (LTC) sometime in your life.
This service is NOT covered by Medicare. Long-term care services can range from $60,000 to $120,000 a year. Families that are hit with this burden end up liquidating their assets just to pay for the services. This can be AVOIDED with the right type of planning. LTC is a dynamic topic and I will be covering it in future posts. For now, know that it is vital to plan for this demographic certainty.
Question Time - Comment Below
Now it's your turn. I'd love to hear about your experiences or blocks around savings. Do you have a rainy day fund? Do you have a retirement strategy? Have you looked into long-term care?