For my regular readers, this will come as no surprise. From CNN Money:
Roughly half of Americans are saving 5% or less of their incomes, including 18% that are not saving anything, according to a survey from Bankrate. Only about a quarter of people are saving more than 10% of their earnings.
I have a problem with the way they presented the survey, lumping people saving >5% in with those saving nothing. Making the transition from non-saver to saver is the most important step you’ll ever take in your financial life, even if you’re only saving 1%. Saving small is a starting place; in time, as you develop better habits and are able to watch your savings grow, it will be easier to save a larger portion of each paycheck.
Of course it’s better to save more than to save less, but saving nothing is the worst.
The less money you make, the more important it is for you to save. Why is that? Because developing that habit is the only thing that will improve your financial health in the long run. If you’re spending everything you bring in, you will continue to do so no matter how big that paycheck gets. Therefore, no promotion, better job, or windfall inheritance will have any staying power.
I’ll give you an example from my own life. When I was starting to emerge from my personal financial crisis, brought on by excessive debt and wishful thinking about the future, it was shockingly easy to talk myself out of putting money into savings.
I had just finally started making money again! Each paycheck I got brought me closer to being back on my own again (I was living with my parents at the time). How could I save money when A) I was making so little; and B) when there were much more important things to spend it on?
But I changed my thinking and realized that if I could start saving money under those circumstances, then I would have the financial discipline to survive no matter what life threw at me. My income was at an all-time low. I would never be making less money than I was at that point, and so if I could tough it out and start putting small amounts into savings (and a retirement account) with all those other pressures on me, everything else would be easy!
And now, looking back, I am so glad I did. It was hard not to drink my own Kool-Aid and spend money on those other non-negotiable expenses, but it was also the most valuable financial lesson I’ve ever learned.
When I talk to people now, some are stuck in this kind of rut where they are completely committed to 3 contradictory beliefs:
- They want to save money
- They can’t make any more income
- They can’t cut any expenses
What do you do with that? It’s tough when people desperately want to change, but are 100% against making any changes. You start going through their expenses one by one, and they have an airtight excuse on why it can’t be reduced or eliminated. As the conversation progresses, they tend to take the tone of “see, I told you so! I can’t put away any money until X happens.”
What they really want is to be right about their story. That’s what it means to drink your own Kool-Aid.
But would you rather be right, or would you rather be rich? You decide.
It’s really easy to look at someone else’s spending habits and say “I’d just cut this, this, and this. Problem solved!” But it’s a lot harder on your own spending habits. I’ve never met anyone who wasn’t a master of self-justification, myself included!
There are three shifts that need to happen in order to break out of this kind of thinking:
- Ask yourself the following question: If there were a solution here, what would it be? Let’s assume that there’s a way for me to either make more money or cut expenses, and all I have to do is find it. Now what? If you can really engage the question in that manner, the solution is guaranteed to appear.
- Be gentle and patient with yourself. Drop the negative self-talk. Get some altitude on the situation by reminding yourself that there are things in life far, far more important than money. Stop feeling guilty for financial mistakes you’ve made in the past by extending yourself some grace.
- If you’re tempted to drink your own Kool-Aid, tell yourself to get off of it. Remember rule #6.