Saving

For almost all topics of personal finance, I think that general advice given to a group of people is unwise. Every person has different financial needs, abilities, risk tolerances, etc. Successful finance requires individual thought, analysis, understanding of the system, and some work. Nothing worth having is free, right?

One exception to this rule, though, is my advice about saving. Everyone should save, all the time. Not only when you get a raise, not only when your grandmother gives you gift, not only when you get a tax refund, ALL THE TIME.

Saving is the best kind of insurance you can have. You give up a little bit every month to build a safety net when something goes wrong. Not only do you have that buffer from financial hardship, but if you are lucky enough to get through ten years of your life without having to use your savings, you have a nest egg that can help buy your first home or get transferred toward your retirement savings.

For those of us who do have something go wrong, savings allow us to weather the storm without relying on potentially hazardous (and more expensive) financial tools like credit cards, second mortgages, and loans from family or friends.

So how do you save easily? First, go get your last pay stub. Right now, go get it. Look for the number that represents your pay before taxes and other deductions. Multiply that number by 0.1 or 10%. You should save at least that much of every paycheck.

You should consider this as important as paying your rent or mortgage. Make the life changes necessary to make this work. If you can afford to save more than 10%, then do it. Your future self will thank you for it. I know it will be painful, but you'll get used to it. Imagine if you had just gotten paid 10% less for the last 5 years. I bet you would have made it work.

So why weren't you doing this already? Americans used to, and other cultures still do. I think the credit revolution of the 20th century allowed us to slack on this one, and we found that temptation too alluring. I'm not dissing credit, it is a very useful tool, but access to credit is not the same as having savings.

The saving habit starts early in life. When your parents gave you that first 50 cent allowance, you should have asked for it in nickles so you could put one of them in a steel-hardened piggy bank. Think about this with your kids, students, and self.