When I was a kid, I had a conversation with my grandfather about money and savings. Now, you have to remember the times; these were the days when you had a safety deposit book at your local bank and earned a healthy 5 or 6% interest. I can remember it like yesterday as he was lecturing on the value of saving for the future, putting money away, and the importance of always paying cash. As a child this intrigued me. Now as an adult raising a family, I recognize a lot has changed. First of all, you won’t find me bragging about the meager interest earned on our savings accounts, and you won’t find me believing 100% that you should pay cash for everything, but my grandfather did have one timeless feature in mind, the value of saving with the long term advantages of Time Value Money.
If I was to ask an 18 year old what “bill” will you always pay on time. Number one answer, cell phone. When I ask people of all ages, how do you define your savings strategy, I get answers of “when there is extra money,” or “when they clear up some other things.” So here is the root of the question, whether it is saving for the future of retirement, or saving for the upcoming vacation, why is saving money any more complicated than the obligation of making our mortgage payment? Rationally, it is likely that we view saving money for the future as less relevant because it won’t affect us right now.
Here's what I share with our clients:
- Identify the monetary value of the goal
- Evaluate the timeframe of saving
- Rationalize the importance of the goal
- Create a reasonable strategy to prepare financially for this event
Here is the concept. Every month, our household budget demands that we pay certain bills (mortgage, insurance, utilities, etc.). And in these days of auto pay and bill pay, it becomes more natural to realize at the start of month what is going out without question. How about create another bill. If my goal is to save money but the concept seems daunting, then make it a bill. Remember, these obligations you pay even if you can’t image affording it.
Here is a strategy:
- Create an affordable amount that you know you can maintain even in tough times. Make it a “bill.” ($100/$200/$300 per month)
- Sporadically add to it when there are times of unpredicted income rises. (Tax returns/birthday gifts/bonuses)
- Annually review your budget to see if you can increase “the bill” portion of your regular savings.
- Keep the goal in your front view. Place pictures of your goals to remind you of your efforts and sacrifice. Share your goals with someone you trust.
- Team with a financial advisor aware of and guiding you to your long term goals.
Let us know if we can help. Have a great September.
Blessings,
Dan