Twenty Something Sense

Saving money should be a very simple task, but it is often times built up into an impossible challenge. For those of you saying that you save plenty of money, check out this article to see that American’s actually had a negative savings rate in 2005/6. Here is a chart detailing the US Savings Rate over the past 20 years (data from here):

As you can see, the rate has steadily declined over time and has reached negative levels or levels just above 0. A savings rate of 0 means that on average people in the US are spending every penny they earn. On the negative side it means consumers are spending more than they earn (using past savings or credit).

The current economic status is giving folks a true reality check and a chance to correct their behaviors. With that, I have outlined 3 basic principles for saving below:

1. Save before you spend – This is probably the single largest error made. The vast majority of US workers will spend their paychecks and IF they have money left-over, they will save. The mentality should be completely the opposite – save before you spend. Set a goal for how much you want to save and take this out of your paycheck before you spend or budget.

2. Have a plan for your savings – Once you have set aside money to save, you will want to put this in some type of investment. See Brad’s notes here regarding investment vehicles for your savings.

3. Do not spend your retirement savings – If you want to save for something such as a car, vacation or shopping spree, save for this separately. You should never touch your retirement savings unless it is your absolute final option.

Saving money for your future really can be easy with a little bit of upfront planning. Although this makes me recall my blog titled ‘Double-Edged Sword,’ I think it is clear we need to get back to savings rates of 10% on average. Start saving!