Beyond Words

Words, Wit and Wisdom for Today's Style and Decision Makers

A Cup of Savings to Go Please September 30, 2017

Filed under: Uncategorized — carlawordsmithblog @ 12:00 am

 

Happy National Coffee Day friends! No, this isn’t a blog about coffee; it’s a blog about money. But still, I love coffee so I’ll have a cup while writing about money.

 

When it comes to money, we spend a ton of it on coffee. In fact, if you buy two lattes a week, you’re spending $500 a year on just to-go coffee drinks! Five hundred dollars! And that doesn’t include the coffee you drink at home and most people who frequent coffee shops do so way more often than just twice a week. That’s a lot of dinero on java.

 

But, if you instead invested that money spent on coffee, in 10 years you’d have enough to take a great vacation. Save it for 20 years and you’d be able to pay for one year of college tuition. Yowza! Makes you think twice about coffee to go, doesn’t it?

 

As I said, I love coffee but I’m not a buyer of lattes or cappuccinos at Starbucks or anywhere else. For starters, I can’t stand the size names of Starbucks drinks! Why isn’t the “grande” the large anyway?!

 

 

Great advice but not the advice many Americans are heeding. According to CNBC, nearly 70 percent of American adults have less than $1,000 in their savings accounts and almost half of U.S. families have no retirement accounts savings at all. What gives?

 

In some cases it’s simply a matter of not being able to, other cases lean toward not knowing how or just not choosing to. In the case of the younger generation, the common thinking is “I’ll save more when I make more.” This is not the way to go about it though, because the younger you start saving, the better; even small amounts saved early on are better than no amount at all; and because it’s just often not the case according to Money Expert Kimmie Greene.

 

“Often times what happens is when people make more, they don’t save more, they spend more,” she told CNBC.

 

Money and numbers expert I am not. Far from it as a matter of fact. But it does make perfect sense even to me that the earlier you start saving, the smarter the plan is. When you’re young, it’s even more advantageous because of interest and compound interest in particular, which is basically interest on interest. It is the result of reinvesting interest, rather than paying it out, so that interest in the next period is then earned on the principal sum plus previously-accumulated interest.

 

 

“A penny saved is a penny earned.”

Benjamin Franklin

 

Saving doesn’t have to mean investing in stocks or working with a broker and saving large amounts of money. As Ben Franklin said, even if you save one penny, you’ve earned a penny!  Saving money for retirement is important, but so is saving for a host of different things such as major purchases like homes, college tuition, medical expenses, and other needs. It can also mean living within your means and knowing when enough is enough. As Mary Poppins so eloquently said, “Enough is as good as a feast!

 

But, how much should you be saving right now and how much should you have saved by now? Fidelity Investments says a good rule of thumb is to have the equivalent of your salary saved by age 30 and 10 times your final salary in savings if you want to retire by age 67. Greene’s shared her timeline with CNBC and it’s similar albeit more detailed. It’s still a pretty simple formula.

 

In your 20s have the goal of saving 25 percent of your overall gross pay and make sure your expenses don’t exceed 75 percent of that gross income.

 

By age 30 you should have the equivalent of your annual salary saved. This includes retirement contributions, company matching funds, cash, and investments.

 

After that you should have:

Twice your annual salary saved by age 35

Three times your annual salary saved by age 40

Four times your annual salary saved by age 45

Five times your annual salary saved by age 50

Six times your annual salary saved by age 55

Seven times your annual salary saved by age 60

Eight times your annual salary saved by age 65

 

I think you get the drill. What I like about this plan is that it’s not based on how much you should have saved, but is based on one’s annual salary. Someone making $50,000 a year until their 65-years-old should not be expected to have the same amount saved as someone making $500,000 a year all that time.

 

 

There’s no question it’s tough to do though. We live in a consumer-based society and are constantly fed the belief that not only is bigger better, but more is magnificent! Live like the Kardashians and buy $1,000 phones. Put it all on a credit card and pay a little at a time. Ugh.

 

Then there’s the school of thought studied by many that, “life is too short and I’m going to live for today.” Awesome and have fun doing so, I just hope if your life ends up being long, you’re financially prepared to make up for all that spending and the likelihood that Social Security may not be around to help you out. There’s also insurance costs and medical expenses. My friend’s daughter is a successfully employed woman in her 20s but recently had a medical issue cost her thousands of out-of-pocket dollars despite having decent health insurance. Good thing she had saved her money!

 

If you are looking to save, what are some of the best ways? First off, spend less. Again, I’m no financial expert but finding a reputable financial advisor you trust is a good place to start if you’re looking to make investments and save large amounts. Which brings me to a burning question I’ve had forever: if brokers and investors are so good and so successful, why are they working? But I digress. If your funds aren’t quite on the “financial advisor level,” meet with banker at your local financial institute. A simple savings account may be the way to go. And don’t be afraid to toss spare change in a jar…they really do add up! Something else I read years ago is to save every $5 bill you get. You don’t get them all that often, stocking away $5 doesn’t seem as painful as $20, and take my word for it, they add up too!

 

So maybe the next time you pull up to order a drive-through venti non-fat soy latte, you might think about saving that $5 bill instead of spending it. It might just earn you a king’s ransom.

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