Recently, Bankrate conducted a survey that revealed that “20% of Americans don’t save any of their annual income.” Those results are alarming; that’s one in five people who set aside nothing from their earnings. And nothing will get us nowhere fast. This should go without saying, but this is a huge issue, and if you are one of the 20%, now’s the time to start saving.
So, why save?
The reasons we save are straightforward. Now of course there are plenty of things to save for like a wedding, a child’s education, or a family vacation, to name a few. But the four main areas where saving money is absolutely necessary include emergencies, purchases, health, and the future.
- Emergencies. With all the recent news regarding the government shutdown, there isn’t a better time to rely on an emergency fund. Those of us affected by the shutdown can certainly understand the importance of having some savings to lean on, but for the rest of us, it serves as a great reminder. Unexpected things happen. That is 100% guaranteed. Murphy’s law is not selective. To a certain degree, all of us will experience some sort of financial trial or hardship at some point on this journey called life. Some of us may have already been through the unthinkable, facing devastating situations, foreclosure, bankruptcy, job loss, a serious medical diagnosis, or something similar. As unsettling as this is, it is only a matter of time until some version of this will become our reality.
- Purchases. At any stage in life, major purchases will come up. Whether it’s a down payment on a home, a vehicle, or a house renovation project, it needs to be funded. I understand this is not a popular idea. In the culture we live in, purchases are just not usually paid for in full with cold, hard cash. We swipe the credit card or take out the loan. But what if we were diligent enough to set aside in savings what that monthly payment would be for that upcoming purchase? In the long run, it would allow us to keep more of what we make because we wouldn’t be paying interest on the loan. Still not convinced? Just take a look at any of the loan documents or statements you have lying around and notice how the total amount financed is higher (because of interest) than the original purchase price. This means that we will end up owing more (sometimes significantly more) than what we initially borrowed. Fiscally speaking, this is not a favorable position to be in.
- Health. One of the major expenses that seems to increase with time is the cost of healthcare. When it comes to health, having a prevention mindset is good, but doesn’t make us immune to the effects of aging. Even the most health-conscious people can develop unavoidable diseases or need major surgeries throughout life. Routine medical care due to illness or injury can also be a financial burden. And these scenarios don’t even include the cost of health for a family. Prenatal and maternity services, delivery, routine visits to the doctor, dentist, and eye doctor, trips to the emergency room, braces, glasses, and medications/prescriptions all add up. This is not an exclusive list. There are many more possibilities and health-related issues that can and do come up.
- Future. Thinking about the future can be daunting, but it is necessary to do when it comes to planning for retirement. So unless we plan on working until the day we die, or we’re counting on social security, an inheritance, or winning the lottery to carry us into the last years of life, we have to save a portion of our income. This is not code for anything else. It really is that plain and simple. The good news is, many of us have a 401k, 403b or pension plan through an employer, sometimes with a percent of matching funds. If not, options like IRAs (Traditional or Roth) and other long-term investments with mutual funds or ETFs are viable alternatives. Regardless of the method, we need to be saving for the future.
So what do we do now? Where do we start?
First thing’s first. Create a line item in your budget for the four areas I listed above. Obviously, you need to build a budget if you don’t already have one. Determine what amount you will save for each one.
For the emergency fund, it’s recommended to save $1,000 for short-term emergencies like a deductible. As far as a long-term emergency fund, that should cover three to six month’s worth of expenses when a more detrimental circumstance arises like a job loss. The amount to save ranges among households, which is why it is so important to figure out your specific budget so you know what you would need in the event of a long-term emergency. Overall, the window of three to six months is a safety net to catch your bills when you can’t.
Second, get insured. Home owners/renters, car, life, disability and health insurance, are all essential to protecting us, our family and our bank accounts when life throws us a curve ball or serves us lemons. If you’re not sure what company to choose, shop around, and ask for recommendations. People are happy to share about a company they trust and have had a good experience with. Don’t have health insurance through an employer? Check out one of these christian-based, health cost-sharing companies: Medi-Share at www.medishare.org, Samaritan Ministries at www.samaritanministries.org, or Christian Healthcare Ministry at www.chministries.org. Bottom line is: we need to be protected, period.
Third, consider an HSA, or heath savings account. This is a separate, tax-advantaged account that covers eligible medical expenses. Contributions can be deducted from each paycheck tax-free and the dollars used to pay for those eligible medical expenses are also withdrawn tax-free from that account. Find the 2019 IRS income limits here: https://www.irs.gov/pub/irs-drop/rp-18-30.pdf or check with your employer to see if this is an option for you.
They will have no fear of bad news; their hearts are steadfast, trusting in the LORD. Psalm 112:7
There is precious treasure and oil in the house of the wise [who prepare for the future], but a short-sighted and foolish man swallows it up and wastes it. Proverbs 21:20
All in all, if we find ourselves slacking with saving, it’s time to get serious and make a change. And change happens one step at a time; just start small and build on it. Remember, we have almost no control of what will happen to us, our health, or our future. But one thing we do have control of is what we do about it now to prepare for it then.