- Personal Finance
How to Save Money for Life: A Plan for Saving Your Way to Wealth
The Percentage Rule
Why do we want to save money? At the same level of importance as getting out of debt, Americans want to save more money -- for a house, for their kid's college, a wedding, a vacation, home repairs, a new car, and obviously saving for retirement. Saving is something that hopefully you learned when you were young, and became the way you made plans for your money or your allowance. Here is a simple way to learn to Save More for Life.
With the advent of easy credit, the days of saving before a big purchase seem almost quaint. For years it has been too easy to simply buy something now, and pay for it later (or forever!). Stores even often instant credit at the register to encourage new shoppers to apply for a new store credit card.
But try to remember the savings discipline of your youth (or mine!). The discipline of saving from a part-time job, allowance, lawn-mowing, birthday and Christmas gifts had other benefits. If you know, as a kid, how hard it is to pile up the money for your new bike or toy/game, then generally you learn the value of a dollar. You may have even looked for cheaper alternatives (used, eBay, Craigslist, etc), or possibly decided that this MUST HAVE purchase was no longer worth giving up your HARD EARNED savings! It's a powerful lesson.
THE TEN PERCENT RULE
OK, so you're not in school any more. Or maybe you are still in school, but not at this moment. I like the 10-percent rule. Here's the easy way to build new savings habits today! Choose a percentage of all income, gifts, cash flow, everything that comes into your life, and create a personal "tax". Every pay check, every dollar you earn, find, receive gets an additional savings tax (yours!) above the government's withholdings or your retirement contributions (if you make them).
If your budget cannot withstand 10 percent savings deductions then find a number that you, and your loved ones, can deal with. Start at 5 percent and only move up when you feel comfortable. The money will add up quickly and you will be able to fund your dreams like never before. David Bach's great book "Automatic Millionaire" has a similar idea, and even suggests that you automate the savings transfers. I believe if you do it manually each time you get paid -- take YOUR savings tax and move it elsewhere -- then you will reinforce the habit of paying yourself off the top, before other obligations.
If you don't believe to build savings quickly it's possible consider this... Imagine all the money that has passed through your hands in the last year, five years, or more and consider what it would feel like to still have ten percent of that saved in the bank, or something else to show for it.
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