Kick-Start the Savings Habit

These days, we are so eager to run that we forget to walk first! We neglect saving in order to "invest," when both are necessary. Saving money provides the crucial foundation that allows us to then invest successfully.

Before the rise of the financial planning industry in the 1970s, the cornerstones of personal finance were “savings accounts, whole life insurance, and the home mortgage.” Most people’s number one fear was speaking in public, not running out of money.However, personal savings peaked in 1975, when the average household socked away 14% of their earnings. That’s a stark contrast to the average post-2000 family, who set aside as little as 1% of their yearly income, as the following chart from shows:

Credit may have driven the economy for a few decades, but it came at a steep price. Consumers got used to having lines of credit and abandoned the concept of savings.

As the credit market seized, and consumer credit lines began to shrivel, people started to realize that the credit limits on their accounts weren’t the same as cash in the bank. By 2008, the trap door of credit caught the whole country off-guard as the economy crashed, foreclosures soared, and many found themselves unemployed and/or insolvent.

An active and consistent savings strategy is KEY to our economic health. It provides a number of short- and long-term benefits, such as:

1. Having a robust emergency fund available.

2. Having liquidity for opportunities.

3. Weathering economic downturns.

5. Save more money, save the economy.

4. Saving triggers an upward spiral towards financial security.

Posted on November 1, 2015 and filed under Investments, Savings.