9 best reasons to save money

 

9 best reasons to save money
By Melissa M. Ezarik • Bankrate.com
When it comes to saving money, there are two types of people -- those who save and those who wish they were saving. Unfortunately, "saving is simply not part of most people's behavior pattern," says Frank Congemi, a Deerfield Beach, Fla., registered financial gerontologist and investment adviser who helps clients with retirement planning. With the rate of personal saving now at record low levels in the U.S., it's a good time for those who know they should be saving to think about why it's a good thing to make do with less now, so you've got more later.

1. Desire to retire.
"Retirement is what I call a long term, long term goal," says Congemi, who likens it to a game of musical chairs: It's somewhere out in the future and all too few think much about it until it's too late. "You run around in circles and when you go to sit down, you're out."  

Peter J. D'Arruda, a financial educator, author of "Financial Safari" and president of Capital Tax Advisory Group in Cary, N.C., agrees.

"Retirement is always something that happens to the old people next door. I see people spend more on their yard every year than they save for retirement. Priorities are out of whack a little bit," he says.

A 2005 Hewitt Associates survey report, "Your Future Financial Security," found that even those participating in company retirement plans believe they should be saving more: The ideal, according to those age 59½ or older, is 19 percent of their income, and those younger see 15 percent as the ideal. But actual savings is far below that, with the older group saving 10 percent of their incomes for retirement and the younger group 6 percent.

Are you saving as much as you can? Take a does-it-hurt test -- make sure it hurts a little bit, says investment expert Jeff Harris, co-founder of The Family Legacy Forum, an organization that helps families handle the emotional and psychological aspects of money.

2. There's a train wreck ahead.
One thing certain about the future is its uncertainty and in an uncertain market the mantra is: Start early, save more.

That murky future, combined with low savings rates and the continual decline in the number of employers that offer defined benefit pension plans has financial advisers worried about what will happen to the masses. "My sense is they're going to be woefully unprepared for their future," says Harris.

"I see it as a train wreck," says Congemi, who points out that as baby boomers realize they haven't saved enough for retirement, the next generation will have to be called upon to help. And then that generation, of course, won't be able to put away enough for themselves. D'Arruda points to the worries some people have that boomers will sell off their equities to live through retirement and the stock market will take a tumble as this large group exits the market. 3. Expect the unexpected. Because emergencies -- think job loss, illness, car breakdowns and home repairs -- happen to all of us (sometimes all at once), experts recommend building reserves for a rainy day before funding those sunny retirement days. Nationally syndicated radio talk show host Dave Ramsey, author of "The Total Money Makeover," calls this reserve fund "Murphy Repellant." He explains: "You know Murphy's law -- anything that can go wrong will. If you don't have an emergency fund Murphy will move into your spare bedroom and eventually invite his three cousins -- Broke, Desperate and Stupid -- to join him." Harris agrees. "The fact is, no one knows when something's going to occur where they need to put their hands on $5,000 to $10,000." But isn't that what home equity loans and credit cards are for? Borrow off the house, and "odds are, you'll never put that money back," Harris says. Not to mention, credit card interest rates rack up fast. Having an emergency fund brings peace of mind that you'll be able to keep up with the mortgage and other regular bills for a few months, should a financial setback occur. For those who are working on getting out of debt, a realistic emergency savings goal to begin with is $1,000, says Ramsey. Then work up to saving three to six months' of expenses to take care of bigger emergencies.  4. The price of getting smart. Since a kid's college years crop up faster than you can say "expected family contribution" -- and even public institution costs are expected to reach six figures by 2020 --  the goal of being able to pay for a child's education is what keeps some parents and grandparents saving. Participation in 529 plans will likely be skyrocketing, now that the tax benefits of these college savings vehicles have been made permanent. Yet some financial experts recommend thinking twice before giving savings the old college try. "My approach is to put as much money away into retirement as you possibly can, and don't put money into college funds," says Harris, who has three daughters in their 20s, each of whom started off in community colleges and eventually got their four-year degrees without the need for loans. "Here's the method to my madness," says Harris. "Retirement money works for you at a younger age. Most people don't have funds available to adequately put money aside for both retirement and college. If you put maximum into retirement and your child is ready for school, you can discontinue retirement savings and pay for college out of your cash flow. Don't forget, the amount of aid students can get is limited by the assets they already have. A student who has a big nest egg won't qualify for financial assistance. My counsel has been: First set up an emergency fund, then fully max out your retirement and only then put money into college funds."

5. Living your dreams. Everyone has goals and, aside from those that involve being a wonderful person, many of them take money. Whether it's homeownership, a big wedding, a trip around the world or a cabin at the lake, setting goals and working to achieve them is a mark of happy and successful people. What's more, the lifestyle and things you have to give up to make those dreamscome true are often insignificant and forgettable. 6. Let your freedom -- and independence -- ring. When is "the American way" not? Right now. The U.S. savings rate -- tracked by the U.S. Department of Commerce Bureau of Economic Analysis -- is currently a negative number, at least in government terms. Yes, it's official: Americans today spend more than they earn. Savings are less than zero. But you can break out of that mold all on your own and reap the benefits of feeling free and independent. "Living within our means is one of the hardest things to teach," says Harris. But that doesn't mean one can't beat the odds and be a saver. 7. Answering opportunity's knock. We all envy those who are "in the right place at the right time." If you could build up your savings you'd be in the right place, just waiting for that knock on the door. There are times in life when it may be advantageous to part with some extra money to take a chance on something big. Say a friend is starting a new business and is looking for investors. "For $5,000 you could be part of that and change your life. There are any number of folks who have had their lives changed because an opportunity came along where they had some funds and were able to put money into it," Harris says. Since opportunities often arise quickly, only a saver will have the freedom to seriously consider them. 8. Building real character. In Harris's 20-plus-year career, he has observed that those who learn enough discipline to leave saved money alone -- rather than giving in to another spending temptation -- are able to grow and mature. That kind of discipline teaches self-respect and earns the respect of others. It shows you can maintain control of your own life and avoid emotional decision making. Buoyed by that success, it encourages further goal setting and the knowledge that you can accomplish what you strive for. And it's not just about you -- about getting what you need and want -- it can also be about opportunities to give of yourself. When a family member or friend is in dire straights, savers may be able to help the loved one financially, Harris says. "That really helps you as a person, to realize you've been able to make a difference in a person's life." 9. It just plain feels good Most savers see the long-term rewards as worthwhile -- and not just financially. "The more you put away, the more you want to put away," D'Arruda says. "You start feeling good, and you get a better feeling of self-worth when you're saving." Self-sufficiency can be seen as patriotic, too -- when you can take care of yourself, society won't have to. And since money (generally a lack of) is a major source of relationship problems, having savings can help alleviate stress and make relationships more fulfilling, says April Masini, the voice of AskApril.com, an online dating and relationship magazine. "Those with savings also tend to be a little more open-minded." Melissa Ezarik is a Connecticut-based freelance writer.