Here's a Secret: Saving is All About Spending!


Do you want to know a secret? Saving money is not about depriving yourself of fun today. It's about having money to spend in the future. People who save money regularly live their lives from a position of financial strength. They can enjoy the present and have confidence in their ability to handle whatever tomorrow brings. But don't just take our word for it. Let's look at Amy's experience:

On Monday morning Amy hopped into her car to head off to work. Unfortunately, the engine started to make the kind of noise that gives a whole new meaning to the phrase "shake, rattle, and roll." Amy took her car to a mechanic and left with a whopper of a repair bill. End of story? Nope, it was just the beginning -- because Amy had no savings and her credit cards were maxed out.

Sadly, Amy's saga is far too common. The Consumer Federation of America (CFA) reports that the average person incurs roughly $2,000 of "unexpected" expenses a year. However, many people have less than that in savings. For instance, the average woman between the ages of 24 - 35 has less than $500 in savings. With no financial safety net, all it takes is one faulty engine to send your finances into a financial tailspin.

Saving, once a time-honored practice amongst previous generations, seems to have gone the way of transistor radios and black and white television sets. These days, Americans save practically nothing. This means that if you're not saving anything today, you're not alone. Now here's the good news: simply acknowledging the importance of saving is a huge first step.

When it comes to saving, your initial goal is to create an emergency fund. Start by striving to save $2,000 in a separate savings account (so you're not tempted to spend it). To find the extra money to save, take a good hard look at your spending and see if there are any items you can cut back on. How many channels on that cable package do you really watch? Can you bring your lunch to work or cut back on take-out dinners? These are the kinds of questions that can help you free up some extra cash for your emergency fund. Once you achieve that $2,000 hurdle, continue to grow your emergency fund until it can cover three to six months of living expenses. You'd be amazed how much stress this pot of savings can relieve. Once you have an emergency fund, unlike Amy, you will be ready for the unexpected.

When you achieve this goal, it's time to congratulate yourself. Seriously. You'll be miles ahead of the typical American with regards to your financial security. The next stop on your journey to financial strength is to save for "big-ticket" items (such as a down payment for a car or house, a vacation, etc.) and for your retirement. As a rough rule of thumb, you should set aside 5 percent of your gross (i.e. before-tax) income for your combined emergency fund/big-ticket items and at least 10 percent of your gross income for retirement. Regularly doing this will put you on the path to financial nirvana.

If you're just getting started on a saving program, being told to save 15 percent of your income may feel like being told to just go out and climb Mount Everest. Don't despair! It's important to realize that 15 percent is your end goal, not your starting goal. Start small -- with that $2,000 emergency fund -- and with perseverance and determination, you can slowly build your way up from there. As you head into 2007, there is no better gift to give yourself than to embark upon a program of regular saving!



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