Lost Your Savings Habit?
By Joanne Seymour Kuster
The power of saving is underestimated.
Unfortunately, several years of dismal interest rates on savings accounts has caused many consumers to ignore the benefits of learning to be a saver. Even some who regularly socked away something have abandoned their steady savings habit. What’s the point?
Whether you are a student or retiree, young or old, employed or not, don’t underestimate the power of saving regularly. Developing a savings mentality will save you far more than the meager percentage the banker pays in interest. Here’s why:
- Savers learn to allocate resources differently.
Those who learn to save money to reach a goal often look at their overall spending in a different light. Many consider the trade-offs, or opportunity costs. When saving for a car and a vacation, for example, they might decide they can be happy with less expensive choices for both items and enjoy both sooner.
- Savers develop skills in delayed gratification.
Think of saving as delayed spending. There is value in having an end goal for saving, whether it’s short-term (like new shoes or holiday presents) or long-term (like a retirement nest egg). Waiting to buy something until you have the money means you won’t have to put it on credit.
- Saving in one area overlaps to saving in others – it’s a mindset.
Once you start saving, the habit can extend beyond stockpiling pocket change. For example, you might be more inclined to look for ways to reduce your costs by changing grocery shopping habits, borrowing books (and e-books) from the library, reducing electricity use, recycling, or re-using.
- Saving becomes a lifestyle, one passed onto your children.
Even simple money-saving acts become habitual—such as emptying your pocket change into a savings jar, using coupons, buying items only on sale, using a budget. Not only do these become part of your ordinary routine, but they are also a routine your kids (and grandkids) will model.
- Saving often becomes investing – a key to financial success.
Many savers become investors too. Once they see how their money can compound to make more, they want that compounding to happen faster. That’s when investing becomes a possibility, even though with greater rewards comes greater risks.
- Not having a savings mentality costs you even more money.
Sadly, those who do not learn to save pay more for almost everything. This comes in the form of paying bankers to lend you money, paying credit card fees, and racking up interest on debt. Not having an emergency fund means borrowing money for the unexpected. Not having money in your bank account means paying the overdraft fee. Overuse of credit cards and revolving balances means a lower credit score, which translates to paying high-interest rates for mortgages and car loans.
- And yes, even small sums add up.
The magic of compound interest should never cease to amaze. Left alone, even saving $5 a week can multiply into a nice nest egg and keep you away from the brink of financial disaster. Plus, the interest rates that banks pay savers will eventually rise, and it’s nice to have a nest egg to take advantage of that.
Once started, both good and bad habits are hard to break. You, too, can start the savings habit. After all, how fun will it be to have that nest egg?
Joanne provides year-round ideas on saving, spending and investing at the MoneyGodmotherBlog.com and in presentations to parents, students and organizations.