“Beware of little expenses. A small leak will sink a great ship.” -Benjamin Franklin
More than 200 years ago, this great statesman, inventor, and philosopher was well aware of the power of saving. He knew that without attending to spending and expenses, saving won’t happen.
Live for today or save for tomorrow?
I have a friend named Judy (not her real name) who truly lives for today because the future is unknown. She thinks, “I may get hit by a bus, or get struck with a disease so why should I focus on saving?” But Judy isn’t stupid, she realizes there is some fallacy in this thinking as there is also a chance that she may live to a ripe old age. So, Judy struggles with the question, “how do I reconcile these competing beliefs”? She confides, “I don’t want to live my life totally focused on the future, and miss out on the fun of today. But I also don’t want to live only in the present and have no money saved if I live a long life.” Consequently, Judy has some really great stuff, a huge house, lots of beautiful furniture, but not much in the bank.
Now that she has all this stuff, the initial newness and excitement of her purchases has worn off!
Judy is also beginning to worry about the future a bit. This is a real philosophical question and a difficult one at that. “Live in the Moment,” is a wonderful tactic for enjoying the present.
But, how does one reconcile the practicality of living in the moment with the fact that we all need some money for future emergencies and spending?
For Judy and the rest of us grappling with this issue, how do you figure out how much to save? I confess that I have been struggling with this issue for many many years. It was very confronting to me last year when my husband and I went to a Monte Carlo night fund raiser. In exchange for our entrance fee we were given $10,000 worth of pretend money to gamble with all night. I was so terrified of running out of money that I only made very small bets. Consequently, I didn’t win too much………… although I didn’t lose too much either, and at the end of the night I had preserved a lot of pretend money. But the down side of my conservatism was that I FELT VERY ANXIOUS AND WORRIED ABOUT RUNNING OUT OF MONEY pretend gambling chips.
So why am I telling you this? Because at one point my husband admonished me, “Why don’t you stop worrying about running out of chips and have some fun? You know this isn’t real money!” For me, that was a wake up call, I was sacrificing the enjoyment of pretend gambling due to a fear that I would run out of PLAY money. I certainly would have been better off and had more fun if I had made some bigger bets and let go of my fear of “running out of pretend money.” Obviously, I couldn’t spend the pretend money I had at the end of the event as it was WORTHLESS! I had gone to the extreme at a party and even at this fun event; I missed the opportunity to live in the moment.
In sum, there is a fine balance between overspending and spending an appropriate amount to allow for today and tomorrow.
Your personal challenge is to find the best balance between spending now and saving for the future. Start simple and try saving 10% of your income. You can’t go wrong with saving 10%! And if you find it’s too much or too little, you can always adjust in the future.
Do not despair if you can’t save 10%; save as much as you can now, even if it’s just 2% of your income! In fact, it’s better to save something NOW, no matter how small an amount rather than give up and save nothing.
If you want to get a bit more specific, there are lots of calculators to help figure out how much to save for certain situations; down payment on a home, retirement, college etc. My favorite site for savings calculators is here at bankrate.com.
Assume that the world will go on…….. and not end tomorrow. Of course, fun and enjoyment are important and you need cash for the present, but to have a satisfying life, keep some cash stored away for future expenses. Don’t stress out about being really technical and calculating!
Start a saving HABIT! The amount of money is less important than beginning the habit.
- Get a notebook and label it: “(your name) Personal Finance” and keep it by the computer. Use it to keep all of your personal finance goals, thoughts, activities, and plans.
- Tomorrow visit your personnel office at work and your bank. Follow their instructions to set up an automatic payroll transfer from your paycheck to your savings account.
- If you can’t transfer cash directly from your paycheck, then set up a regular automatic transfer from your checking to your savings account.
Today’s guest post was from Barbara Friedberg. Get more saving and goal setting motivation and information from her blog; a good post to get started on is “How to Get what you Want Out of Life and Have the Cash to Pay for it“.