The Importance of Saving Money
Saving money is an important part of your personal financial journey. In John Wesley’s message on money, his three main points were earn all you can, save all you can and give all you can. Unfortunately, many people are not saving these days—at least not very much and not consistently. According to recent data from the U.S. Bureau of Economic Analysis, the personal savings rate in the United States is 5.7 percent. This means that out of every $100 in after-tax income earned, approximately $5.70 is being saved for things like emergency expenses, major purchases, retirement, etc.
If the amount you have in your savings account is less than $1,000, you’re not alone. According to a 2017 GOBankingRates survey, 57 percent of Americans have less than $1,000 in their savings accounts. And 39 percent have no savings at all.
The best way to get started saving is to create a budget and make sure it includes a margin of at least 10 percent between your net income and your actual expenses. Then designate those funds specifically for savings. Here are five reasons to save from Larry Moore, Chief Operation Officer for Wesleyan Investment Foundation:
- Save for the unexpected. It’s not a matter of if an unexpected emergency will happen, it’s when will it happen. And rarely is it at a convenient time—a hot water tank fails in the middle of a shower, an air conditioning unit quits on a 90-degree day or a tire goes flat on the way to an important meeting. If you don’t have a starter emergency fund of at least $1,000, you will probably end up paying for these emergencies with borrowed money and usually at a high rate of interest. Several of these unexpected expenses occurring in a short period of time could send you into a debt spiral.
- Save for major expenses. Most individuals will have a major expense in the course of a lifetime for things like a car, home, major medical procedure, etc. This will require a fully funded reserve fund that is approximately 3 – 6 times your net household income. A fully funded reserve fund is also important should you ever lose your income due to a job loss. Another benefit of a fully-funded reserve fund is being able to select a higher deductible amount on your home and auto insurance policies, which will lower your premiums.
- Save for retirement expenses. Many people wait too long to think about saving for retirement. And the longer you wait, the more difficult it will be to meet your retirement savings goal. One way to determine your retirement savings goal is to create a projected retirement budget. Consider using at least 80 percent of your current household income as a baseline. Then it’s a good idea to do some projections to see if the amount you’re currently saving per month will be enough to reach your targeted retirement savings goal. There are some great online calculators that can help you see how much your current rate of savings will provide you with at retirement. You can also calculate how long that pool of assets will last if you withdraw the amount you have projected in your retirement budget on an annual basis. These calculators can be found at bankrate.com.
- Save for education expenses. Saving for education expenses will be one of the most challenging financial goals you will face in your personal financial journey. Many households will not be able to save enough to fund the entire cost of tuition, room and board. Fortunately, in addition to your savings, there are a variety of tools to help you pay for education expenses including, scholarships, grants, on campus work study, student loans, etc. It’s a good idea to work with the financial aid counselors at the college or university of your choice. They can help you map out a strategy to cover these expenses. But whatever you do, it is highly recommended that you keep saving for your retirement in addition to, and not instead of, saving for yours and or your children’s education expenses.
- Save so you can give. The third point in John Wesley’s message on money was to give all you can. But it’s hard to give if you spend all you earn and never save. Being a diligent saver will not only allow you to create a more stable financial base but it will enable you to give beyond the tithe, to live the generous life. One question that each of us must ask ourselves is how much is enough? How much is enough to provide adequately and comfortably for our family? Once we commit to that level of spending, any future increase in our earnings can be set aside to accomplish our financial goals which hopefully will include living the generous life.
So where is a good place to save? Wesleyan Investment Foundation is a great place to invest your savings. Current rates at WIF are 1.5% for the first dollar up to $4,999; 2% from $5,000 – $34,999 and 2.5% for balances over $35,000. But the best part about saving with WIF is that while your funds are on deposit, they are being used to build the kingdom. It’s a win-win! Check it out at wifonline.com.
Guest financial contributor: Larry Moore
Larry, is the Chief Operation Officer for Wesleyan Investment Foundation (WIF).
Executive editor: Russ Gunsalus
Curator of content: Dave Higle