Sunday, April 19, 2009

Why Save Money?

That's the question a student asked of our panel at KSU Thursday night. I appreciated her candor. Her parents keep nagging her to save, but she simply couldn't see why they made such a big deal about it. Although other interesting questions involved the best places to put investment money and the future of interest rates, I felt, in retrospect, that the question about saving might have been the most significant. Why save? Because:

1) Saving breeds more savings.

The more you save, the more you can take advantage of bulk purchases. If you save up for items rather than making payments on credit cards over time, you save tons. Saving up for a car and buying it outright (instead of making payments) can save many tens of thousands of dollars over a lifetime. By paying for things outright, you avoid expensive payments and can invest more each month for future needs.

2) Saving protects us from debt.

Most people run into serious debt because of an emergency, like a job loss or medical issue. Had they saved up enough ahead of time, many of these could have weathered the storm without incurring crippling debt.

3) Savings can grow into millions.

As we've said before, just $20 per week stashed away in long-term investments can multiply into well over $1 million by retirement.

Money guru Ron Blue spend a lifetime studying, writing about, and counseling people about their personal finances. One day someone asked him to sum up in a sentence what he'd learned. He thought about it and responded,

"Spend less than you earn, and do it for a long time."

As Solomon wrote thousands of years ago:

"There is precious treasure and oil in the dwelling of the wise,
But a foolish man swallows it up."

It's foolish to swallow up all that we make before the next paycheck. Perhaps savings could be considered the cornerstone to successful money management.

The questioner bought a copy of my book (Enjoy Your Money! How to Make It, Save It, Invest It and Give It) after the discussion. I hope that reading it helps motivate her start the most powerful habit she could adopt: living way beneath her means in order to find financial freedom.