Save Your Way to Wealth: The New Rules For Saving Money
Saving money has always been crucial, but today it is more important than it has ever been.
We have all learned a great deal about money and finance in this post-recession world. One of the biggest lessons is how fleeting things can be, whether that is a job, hefty stock market returns, or property value. The truth is, our relationship with money has changed forever.
So what does this mean for those mean for you and your hard earned cash? Loop21 went to financial counselor Harrine Freeman, the author of How to Get Out of Debt: Get an “A” Credit Rating For Free, to find out exactly what's changed and why it's more important than ever to save.
Loop21: What are some of the biggest changes that have occurred recently that impact savings?
Harrine Freeman: Pension plans are almost extinct. They were prevalent 30 years ago, but many companies have terminated them or phasing them out and switching to 401(k) retirement plans. By 2008, 53 companies in the Fortune 100 companies offered only a 401(k). Job stability is almost extinct. Many jobs have been terminated or are being phased out due to the economy and technological advances.
Social Security may not be available when you retire. Experts predict Social Security will run out of money for 2017 and retirement benefits may end by 2036. People are living longer which means that more money will need to be paid into the system. Due to unemployment and fewer people working, less money is being put in the system and fewer taxes are being collected.
Cost of living steadily increases. Middle class families are sliding into low-income families and low-income families are sliding into poverty.
Loop21: In light of these changes, what are the new rules for saving and what traditions are still smart?
Harrine Freeman: More people have to take charge of their financial life and can no longer depend on an employer or government assistance. We use to say have enough in your emergency fund to cover six months of expenses, but given that unemployment is now much longer, save enough to cover 12-18 months.
As for traditions, stick with paying yourself first. Automatically transfer money from your paycheck to a high interest earning savings account so you can save with little effort. Another thing the Great Depression taught us was not to put all your eggs in one basket. This truly applies to investing. Diversify your investments to minimize losses and maximize income. Create multiple sources of income for your retirement.
The future is unknown, saving provides stability, a safety net. The new thinking should be that saving is a priority. The more you save, the more you earn – yourself and your future.
What's the best advice you've ever received about saving money?