Given a Choice, What Will You Do? Life is a bunch of choices or is it? Smart choices depend on savings. People without savings or access to money do not have choices. Just in case it is not you, I am talking about the people who are at their credit card limit, live paycheck to paycheck, no savings, up to their eyeballs in debt and a lousy job that they hate. Is that bleak enough?
Who are they?
Before you think it is always someone else, think about it? Do you love what you do? Is your job stable? Do you have at least six (6) months expenses in a rewarding fixed rate ISA? If you answer no to all these questions, you could be just days/week/months away from having no choices. Do you think the people who bought houses before the real estate bubble burst thought a disaster was about to happen?
Sometimes things just happen! Do you have the savings or a Plan B to handle it? My recent injury makes me think of how things just happen! I never saw it coming and I did not do anything to cause it. How do you prepare for these kinds of things? Thankfully I have really good medical insurance and money in my Flexible Spending Account (FSA). What would my Plan B be if I did not have these benefits? I have other resources besides savings since my wife is an RN. In other words, I have access to information.
I know people who know people. Rich people always have resources beyond money. I do not consider myself rich, but certainly comfortable. I always surrounded myself with other successful people and that is a great safety net. What would you do? Belts and suspenders are a term in finance that I embraced over the years. It is a backup if something fails. Savings is a backup, if you need it. Many people who find themselves in these situations, say they have no savings because they are making minimum payments on debt and have nothing left for savings.
Solution
My first decision and priority is always savings! It is the first thing I set up as a payroll deduction. I adjust everything else to make that happen. You can start small and build from there. My first savings account started with $2.00 per week. Start with your daily/weekly/monthly expenses and find one to give up or change. Something as simple as giving up going out for lunch one day a week will yield $10 or more per week. If you give up dining out once a week or change how you spend your money can help you achieve your savings goal. What are you going to do?
Savings provide choices. Savings is not just for retirement. Save for a down payment for a house, car, vacation, or education is just a few of the things that give you a better life. The earlier you start, the more money you will have. What else can you do to save or save more? Take the next salary increase or promotion and put it in savings. Another is redirect your payments after you pay off debt to savings. Time is on your side and it will grow over time tax deferred in a retirement account or in a brokerage account subject to capital gains tax rates.
Wrap Up
Savings provide choices! Saving for retirement means you can chose to retire or continue working because you enjoy working. Having savings for emergencies means you are not paying high interest credit card debt or other loan interest. Saving for a down payment means you will pay a lower interest rate and have a lower monthly payment. Savings provide a lot of choices, but it is up to you. Given a Choice, What Will You Do?
Photo by: Mile Licht
Carnivals:
Yakezie Carnival at Financial Success for Young Adults
Carnival of Financial Camaraderie at Thirty Six Months
Canadian Finance Carnival at Canadian Finance Blog
Carnival of Financial Planning at Aaron Hung
Carnival of Retirement at My Personal Finance Journey
Given a Choice, What Will You Do?
I don’t have six months worth of income saved, but I do have an emergency account that lets me rest at ease. I also have several other savings accounts set up on auto pilot so that I can save for the things that are important to me. Developing a savings habit is one of the best things that you can do in my opinion.
Savings helped me achieve all my financial goals. It also gives you more and better choices.
Choices – that’s a good way to put it. Less savings means less choices. The ultimate, of course, is having so much savings that working at your job is actually a choice and not something you have to do.
That is the ultimate choice! That is what I call financial Freedom.
My favorite two words: direct deposit. 😉
I have had direct deposit since the early seventies, however you must choose to set up a payroll eduction for yur 401K or savings.
Tough question, but find a balance. Saving by putting money in the stock market when you carry a credit card balance with 18% interest isn’t going to help you very much.
I think you have to work on both. Pay off the credit card and start saving even if it starts small.
Agreed, especially if you have 401k/403b matching from your employer. I consider myself VERY lucky to have a fantastic 403b match program at work – they put in 5% if I put in nothing…and then match up to another 5% that I put in. BAM, 200% return! Although I still have a mortgage, my student loans, and my husband’s student loans to pay off, investing definitely makes sense here – I would be nuts to not take advantage of free money!
Sounds like a great deal! No use leaving money on the table.
I like your focus on savings, and your idea to start as small as a $2 deposit is great. Any step in the right direction is a step worth taking.
I have always said small changes work and work better than sweeping or big changes. Start small and add to it.
I have only about two months of living expenses saved up in a readily available emergency fund. I did have about six, but then an emergency happened which required me to use it.
My income isn’t stable either – I’m a temporary employee at my job and am anxious to get a full-time, permanent job. But I have many skills so I’m sure it won’t be problem getting some kind of job if I can’t find the “one” when my term is up.
Even a two (2) month emergency fund provides choices. It buys some time. Best of luck in finding that full time job.
Savings is my priority as well. I set financial goals, and one of the most important ones is maxing out two roth ira’s. I think I should be able to hit that while also saving for a down payment on a house.
Good job! Savings helped me achieve financial freedom and gives me so many more choices in life.
I save more than 50% of my income every paycheck. 15% goes in to retirement, rest in to home buying account.
WOW! If you keep that up, you may be able to do more than buy a house. Have you thought about buying a duplex or triplex?
You are so right! Savings allows options. Having options is freedom. Being Free is everything! I have 6 months emergency funds and am always thinking about how much to keep in cash beyond that.
Along with choices, you can make choices to invest your extra funds. I invested my savings into income property and watched it grow. It was the start of financial freedom for me.
I totally agree that having a savings is a must. Doesn’t matter if you are saving just a little each month or a lot. No matter how small it is it still leaves you with at least some choices. The wife and I are saving to build up at least a 6 month emergency fund. Both of our jobs are pretty stable, but you never know what could happen. Great article by the way!
Thank you, I used savings to buy my house. My first investment in rental property used savings. Savings is a good hedge when something unexpected occurs and when you are ready for an investment. You have choices
Any little bit of savings helps – it could be $2 or $200. Once you’ve made up in your mind that you are going to save and you put aside that first little bit, you’re on your way. What you can save, I might not be able to, but I’m still going to do it.
I agree starting to save is the important part, you can always add to it.
It can be truly painful to start the savings process, but it certainly is worth it. I found that my stress level is really lessened when there is acouple months of savings in the bank.
I agree there is some comfort knowing you have savings to fall back on. Starting small is the beginning of a habit. You can add to it over time.
I have obviously seen the whole “savings is important” idea before, but what I am really interested in is the human capital you talk about as being another layer of security. Do you think you could do a post in the future going into how you systematically associated with other successful people and how these associations have helped you?
Thanks for the idea! I think that could be interesting.
Putting money aside for a rainy day has to be a good thing. We never know when an emergency might arise. And, with sufficient money put buy it makes sense to use some of it to make a purchase rather than automatically turn to credit.
If you are doing anything there are always things that come up such as car and other repairs/replacements. An emergency fund heps significantly in those cases.
Without directly depositing my money and savings into an allocated account my wife and I wouldn’t be less then a year from retiring to our cabin.
I use a payroll deduction for savings too. I think I used it for 40+ years.