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Why should you save money if you don’t have a reason to do it? It’s hard work, after all. to put money by and leave it alone. Saving for the unknown doesn’t make a lot of sense on the face of it. I hope that when we’re done here you’ll have a reason to save for something.
Please note that this is not professional advice and is not meant to be. Just putting a thought out there and trying to be generally helpful.
Life’s little uncertainties
Some would argue that saving large sums of money is a foolish waste because any minute we could all be obliterated. That’s true. However, how many minutes have gone by without our being obliterated? And we still have bills to pay. Drag.
Smarter to count on smaller disasters. You went to the ER. You did something to your ankle but no worries, you have insurance. They X-ray your ankle, tell you it’s a sprain, and send you home with a boot. And weeks later you get a bill from the guy who read your X-ray. He’s not a provider on your insurance’s list.
Or you’re going down the road in your car and suddenly it’s sideways spewing parts all over the pavement. Congratulations! You need a transmission now.
Life is full of little surprises. You could save to be ready for them by making a savings account for emergency expenses. Someday, somehow, you know you’ll need it. You might as well be ready for the next surprise.
Life’s little duties
Things are expected of you in life. If you have kids, they expect support, even through college if they do that, and beyond. If you have pets, same thing, different scale.
Imagine having a kid who’s applying to colleges and counting on your help finding out you haven’t saved even one dollar for their education. If you don’t want to be a big turd and you’re raising kids, consider a college fund. Look into the tax-advantaged plans available, and find out what you can do with the money if the kids all go to trade school instead.
Having some money put aside will help when your elderly parent needs someone to talk for them at the hospital a thousand miles away. You can be there to remind the doctor that your dad isn’t a slab of meat that’s seen better days, but a human being in trouble. There’s nothing better than being there, but it’s expensive to go.
Most of our expenses are monthly bills. Some, however, come billed by the year, like home and car insurance. Sure, you can pay by the month, but it costs more to do that. Put money aside each month into savings for these annual bills and pay them in full when they’re due. This kind of savings is sometimes called a sinking fund.
Escrow accounts are a sinking fund for your property tax and homeowner’s insurance. In my area they apparently aren’t used much; we’ve never had one in our 30 years here but we did on our first house down South.
One sinking fund is enough for all your annual bills. Simply total them up. divide by 12, and you know what to save to pay for them. My sinking fund includes all insurance, the fuel oil, and the property tax. It is the biggest “bill” each month but it’s there when the fuel oil pre-purchase or the taxes are due. No more running around trying to borrow money to cover a bill.
You KNEW I was going to get here, didn’t you?
As someone who retires in weeks, I’ve had some worries, but turns out I did pretty well for a poor girl. So let me clue you in to a couple of things.
First, the sooner you start, the better. I was 25 or so when my employer first offered IRAs. So I put in a whole $7000 over a short time. Forty years or so later it’s nearly worth $90,000.
The secret is compounding. The longer you leave a sum in an IRA, 401(k), or 403(b), the longer it earns money. Then add the earnings back to your starting amount and earn some more on the higher amount. That’s all that’s happening.
And for goodness’ sake, find places to invest it that don’t cost a lot. The costs compound over time too. Notice I say INVEST. That’s because even when interest rates paid well for savers, unlike now, investing grows your money better over the long term.
So low cost, high quality funds should be what you invest in. Get an advisor or take some classes in investing. It’s a good hobby and can be fun too.
Don’t borrow, and other tips
Second big retirement savings tip: don’t borrow or otherwise disturb your retirement savings. All that compounding goes on hold when you take $40,000 out to get an SUV. You might think you still have $120,000 in there but it won’t be growing while you pay back the $40,000. Get a car loan if you must or drive the beater a while longer.
Third: Put in as much as you can, and always increase the amount when you get a raise. I gave my 403(b) a raise whenever I got one, partly to keep taxes down and partly to keep money going in.
Fourth: Don’t quit when the economy shrinks. More magic: when you save into a retirement plan say, $200 a month, your money buys more shares when the market’s down than when it’s up. So when the market’s down your shares of Wooly Fund may be worth only $50 each, but you’re buying 4 of them a month, on sale.
Then when the market’s good, Wooly Fund goes for $100 a share so you’re buying 2 a month, but you also got all those others at 4 a month that are now worth $100, so you’ve got LOTS of money. The pros call this dollar-cost averaging. Do it. Do it as long as you can.
Why you should save for life
Sure, the world may blow up. You may change course in your life and do something you aren’t even thinking of now. But everyone has emergencies, everyone has bills, everyone has some setbacks, and most of us live to be old. So you now know it would be good to have an emergency fund, a sinking fund, and a retirement fund at minimum.
Try budgeting to get a handle on how to start an emergency fund first. There’s lots out there; I like this, of course.
If you struggle setting goals, look at this.
And don’t worry about what if the world ends. We’ll all be in that soup together and money won’t matter then.
Other ideas are welcome, because I can’t know it all! Comments please!
Saving for no reason doesn’t work for most of us. Here are some reasons to start saving, and some tips to help you succeed in growing long-term savings. Time For Retirement[/caption]