Financial Matters

Saver or Spender

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How you feel about money now is often rooted in your experience with money as a child. Are you a saver or a spender? Was saving money something that was encouraged or rewarded?  Despite being given an allowance as a child I often found myself without money. My mother would say “Money burns a hole in your pocket!” Once she said that it almost seemed like a self-fulfilling prophesy because I still did not save. Try as my parents did, it was not until I was an adult that I forced myself to start stuffing my piggy bank.

My parents were the generation known as Traditionalists, those born between 1900 – 1945. A generation marked by two world wars and the Great Depression. They believed in dedication and sacrifice, they adhered to rules and respected authority. They were also a generation of savers and they wanted to pass that on to their children.

My parents tried to help by giving me guidelines for how much of my allowance to save each week. They even let me pick out a piggy bank. Another attempt to incentivize me to save. Twenty percent of what they gave me was to go into the piggy bank and I could spend the rest. Thinking back I can safely say that money did not go into the bank every week. I did not see the same value of having money tucked away for a rainy day since my parents were able to keep most of my days sunny. 

Another disconnect for me was even though they did save money I did not actually see it happen. I understand why they were not about to let their young daughter see the account balances. Traditionalists are more formal in their communication (I was taught to always say “Mr.” or “Mrs.”) and they are generally more discreet, which makes them less likely to discuss issues such as money with a child. Unfortunately for me growing up, that money mystery and mystic was part of the problem. 

I did not see their savings grow so it was hard to understand the value of the activity. Seeing the reward is what helps reinforce and incentivize behavior.  All I saw was a cute but empty piggy bank that seemed a long way away from my goal of being stuffed full of coins. With the goal seemingly so far away, what did it matter if I skipped a week or two?

GUIDELINES

If saving money is a struggle here are some guidelines to help get you on-track, and keep you on-track.

  1. How much to save?

The goal should be to save 15-20% of your gross (before tax) income each month. Many are already saving into retirement accounts which can be included in this percentage. Use 15-20% as a guide and calculate how much you need to save each month. Then subtract whatever is currently being saved in retirement accounts. The amount left is what should be saved each month. If this amount seems very large and not achievable do not feel defeated. Instead be positive. Now that you know how much you should save, decide on how much you could save. Set a realistic plan and stick with it! Congratulate yourself on making progress toward the goal. Some progress is better than no progress! In another year, re-evaluate the amount being saved and see if it can be increased.

  1. What type of account to use?

Some savings might be going directly into a retirement plan but some should also be going into a regular savings account. While a retirement account is likely invested in an asset that goes up and down with the market, some savings should be sitting in cash. The reasons are accessibility and security. Money put into a savings account will be there at any time of the day or night when needed. Money in a savings account will not earn much interest but more importantly, the value of the account should not go down (unless you make a withdrawal). If you put it there, it should be there. Access to cash is critically important in case of a financial emergency or opportunity.

  1. Where to save?

Most people have a banking relationship already established. A savings account can be set up as a separate account (so the money can be more easily tracked) or an existing account can be dedicated to savings. Banks or credit unions are great options as well as some on-line only banks.

  1. What is the best rate of return?

This is a common question but it is the wrong question. Money going into the savings account is not being put there with the expectation it will grow. It is being put there with the expectation it will be there when it is needed. For this bucket of money the rate of return is not important. If the financial institution you are working with offers a rate of return for the savings, then that can be an added benefit. Keep in mind, for many years savings accounts have not offered much rate of return. The most common interest rate on savings accounts is 0.01%, some credit unions and online bank accounts will offer higher rates. www.valuepenguin.com/average-savings-account-interest-rates. Be aware that some institutions require a minimum balance and/or may require the savings be linked to a checking account. Check with your financial institution for details.

  1. When to save?

The best plan is to set a recurring savings schedule and amount. This could mean every month, every pay period, every week. Whatever is easiest. Once the account is set up and the amount going in is determined, an automatic transfer or deposit can be scheduled. Automating the savings deposit will help keep the plan on track.

MAKING PROGRESS

As children we need to be taught to save. As adults we have learned the importance of having money set aside in savings. Too many people have seen financial problems compound when unexpected expenses arise. The problem is figuring out how to make progress toward the goal. For some it is a natural habit and for others it must be learned and practiced over and over. By following these guidelines you can put yourself on the right path. It is never too late to start; the goal is to have more money tomorrow (or next month, or next year) than you do today. 

Asalyn Coachman is a Registered Representative of and offers Securities through The O.N. Equity Sales Company, Member FINRA/SIPC, 39395 W Twelve Mile Road, Ste. 102 Farmington Hills, MI 48331 (248) 482-3600. Investment Advisory Services offered through O.N. Investment Management Company. Financial Architects, Inc. is not affiliated with The O.N. Equity Sales Company or O.N. Investment Management Company.

Asalyn earned a degree in Economics from Harvard University and a law degree from the State University of New York at Buffalo. She lives in Lake Orion with her husband and two children where she is active in organizations such as the Harvard Club of Eastern Michigan, Lake Orion Schools, and the Baldwin Center of Pontiac, Michigan, where she serves as board president.

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