As a nation, we seem to have forsaken saving.
Savings rates in the United States are consistently among the lowest of
the developed countries-which hurts us economically, as individuals and as
a nation. There are many good reasons for individuals and families to
consider savings anew, and to develop plans to make progress on the road
to financial strength and independence. Saving can be surprisingly easy,
and surprisingly rewarding.
There are many
reasons to save.
- First, saving gives us a sense of security and
mastery over our finances. We can see the results of our discipline and
efforts as account balances grow; and as our savings grow, we begin to
gain a sense of financial security.
- Second, as we accumulate savings, we begin to see our money earning
greater and greater amounts on its own, without effort required on our
part. In this way, money begins to work for us, rather than the other
way around. It is truly rewarding to see substantial sums of money
generated solely by our savings.
- Third, saving allows us to make progress toward our goals, which may
include building up emergency reserves, accumulating a retirement nest
egg, saving for a child's college education, acquiring a home, or
planning for major purchases and investments.
- Finally, having savings puts us in a position of control and
flexibility. We can cover unexpected expenses without incurring debt at
high rates of interest; take advantage of investment opportunities as
they arise; change jobs or move-all without the sense of anxiety that
accompanies 'living on the edge.'
How does a
person or family accumulate wealth? The answer is very simple: current
income must exceed current expenditures -- that is, we must spend less
money than we have coming in. In other words, we must save. There is no
other way no other way to accumulate wealth. (We are including windfalls,
inheritances and promotions in our definition of income here - after all,
if they are spent, then we have not added to savings.)
The path of
saving may seem long and arduous at first glance, but the possibilities
are exciting, even for the modest saver. We have constructed two charts to
illustrate our point.
