The U.S. Commerce Department reports that America’s personal savings rate is less than one percent. Until recently it has been less than zero which says we spend more than we earn!
If you spend more than you earn, the result is DEBT. If you want to eliminate debt, you must first learn how to save money.
As basic as it may sound, before you can save money, you have to spend less than you make. In order to do this, you must do one of two things or a combination of both: limit your lifestyle and/or increase your income.
You must begin to make saving a priority in your life. It is a discipline that has to be learned.
If saving money doesn’t become your lifestyle, DEBT will!
You will never successfully get out of debt, or build wealth, until you save money from every paycheck! People often say they cannot save, because there is no money left after paying bills. That’s because they need to pay themselves FIRST, and then pay bills.
3 Basic Reasons for Saving:
1. Emergencies: Many financial difficulties can be traced back to a few common root causes and one of these is a lack of emergency savings. Expect unexpected negative financial events to occur in your life. The best way to handle these events is to have an emergency savings account.
In the words of your grandmother, you need to “Save for a Rainy Day”. The car breaks down, the roof springs a leak, a job loss, a large medical bill; these situations can create a crisis. But most expenses like these can be handled with emergency savings.
If you are a homeowner, you should have $1,000, renters should have $500 in a beginning emergency fund. After your consumer debt has been eliminated, increase the beginning fund to 3 to 6 months living expenses.
2. Major Purchases: Save for large purchases such as auto, furniture, appliances, vacations, house down payment, etc… Instead of borrowing, pay cash by planning ahead and saving for the purchase.
3. Wealth Building: Save for retirement, college funding, etc… Discipline and consistency are the keys to saving for the future.
Compounding means that you earn interest on the money you save and on the interest your money earns.
Compound interest is a mathematical explosion. Albert Einstein was quoted as saying “The most powerful force in the universe is compound interest, because it allows for the reliable, systematic accumulation of wealth!”
Excerpt from “Financial Freedom 101”
Filed under: personal finance | Tagged: debt elimination, money, saving money, wealth building
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