The power of saving is underestimated today.
True, several years of dismal interest rates on savings accounts has caused many consumers to ignore the benefits of learning to be a saver. Even some who regularly socked away something have abandoned their steady savings habit. We’re thinking….what’s the point?
But whether you are a student or retiree, young or old, employed or not, don’t under-estimate the power of habitual savings. Developing a savings mentality makes impact far beyond that meager percentage the banker pays in interest. Here’s why:
- Savers learn to allocate resources differently.
Those who learn to save money to reach a goal often look at their overall spending in a different light. Many consider the trade-offs, or opportunity costs. When saving for a car and a vacation, for example, they might decide they can be happy with less expensive choices for both items and enjoy both sooner. Yes, they refine their choices.
- Savers develop skills in delayed gratification.
Think of saving as delayed spending. There is value in having an end goal for saving, whether it’s short-term (like new shoes or to buy holiday presents) or long-term (a retirement nest egg). What’s the point of saving if you never are able to use the nest egg?
- Saving in one area begets saving in others – it’s a mindset.
Once you start saving, the habit can extend beyond stockpiling pocket change. For example, you might be more inclined to look for ways to reduce your costs by changing grocery shopping habits, borrowing books (and e-books) from the library, reducing electricity use, recycling, or re-using.
- Saving becomes a lifestyle, one passed onto your children.
Even simple money-saving acts become habitual—such as emptying your pocket change into a savings jar, using coupons, buying items only on sale, using a budget. Not only do these become part of your ordinary routine, but they are also a routine your kids (and grandkids) will model.
- Saving encourages investing – a key to financial success.
Many savers typically become investors too. Once saver see how their money can compound, they want that compounding to happen faster. That’s when investing becomes a possibility, even though with greater rewards comes greater risks.
- Lacking that savings mentality costs you even more.
Sadly, those who do not learn to save, pay more for almost everything. This comes in the form of
- Paying bankers or others to lend you money
- Paying credit card fees
- Racking up interest on debt you can’t pay off
- Lacking an emergency fund, so borrowing money for the unexpected
- Not having money in your bank account, so paying overdraft fees
- A lower credit score resulting from overusing credit cards and revolving balances, which translates to paying higher interest rates for mortgages and car loans
- And yes, even small sums add up.
The magic of compound interest should never cease to amaze. Left alone, even saving $5 a week can multiply into a nice nest egg and keep you away from the brink of financial disaster. Plus, the interest rates that banks pay savers will eventually rise, and it’s nice to have a nest egg to take advantage of that.
Once started, both good and bad habits are hard to break. You, too, can start the savings habit. What would you do with that nest egg?!