Raise your hand if you think saving money is a pain?
It seems like such a simple process in theory: Earn money. Save and invest some to fund future living costs. Pay for today’s essentials and fun bits. Be merry.
That’s not quite how it works, though, is it?
Perhaps it goes more like this: You earn money and you intend to set enough aside to fund a comfortable “later”, however life, people, and the end of the month manage to get in the way more often than not. And let’s not mention the carpet-ripped-out-from-under-you surprises that throw you and your finances for a loop.
In today’s post, I’ll look at what’s going on, share some great news and issue a challenge to help you crank up your savings, even if you think it’s impossible.
I’ve worked with enough people in very tight spots, over the last decade, to guarantee you that it is 100% doable. Keep reading and let’s tackle this together.
If saving money has been a challenge for you, rest assured that you are not a unicorn. Take a look at this chart of Savings Rates in Canada, expressed as percentages, using data from Statistics Canada:
How much are we currently saving, on average? If you said less than 2%, you’re right. What do you think of that number?
Remember the now thirty-year-old book, The Wealthy Barber, by David Chilton, in which the main character, the financially savvy barber, suggested that one of the key steps to getting ahead is to save 10% of our income? According to the data above, we haven’t even come close as a nation in the last ten years. (By the way, it turns out that 10% won’t cut it for many people. We’ll address this in an upcoming post.)
When I saw this data, I was floored. As a nation, we are only saving 1.7% of our income. There is no way that anyone can a) create an Emergency Fund and b) grow sufficient wealth to be comfortable in retirement by saving less than 2% of their income. (Remember there’s good news coming – stay with me.)
It made me wonder when did we, as a country, save more than 10% of our income?
It’s been a while; as in, more than 20 years (the savings rate, expressed as a percentage, is on the vertical axis):
OK, I promise this is the last set of data I’m going to share. These numbers are so striking that I want you to see them for yourself.
In case you’re thinking that nobody manages to save much money, the table below shows that’s not the case. Some countries do a darn good job of spending much less than they earn. Check out the average savings rates by country:
What strikes me is that the people doing a pretty terrible job of saving money are, for the most part, the English-speaking G7 countries including Australia, Canada, the UK, and the US.
Well isn’t that interesting? It seems our consumer culture is catching up to us.
For the next two months – which coincidentally works out to roughly the time remaining before Christmas (not an accident) – I’m going focus on helping you significantly grow your savings rate. If you’re wondering why I’m so worked up about savings, read this post on the importance of your savings rate to your overall finances. It plays a similar role to oxygen in your life.
Let’s have some fun with this and make it a challenge: How much money can you save from now until December 25th?
I want to inspire you to get super creative about creating, identifying, and liberating savings in the next 60 days. In this multi-part series, I’ll walk you through the entire process and pass on several strategies.
For now, let’s start with Step #1: Set an intention to save money over the course of the next two months. No intention, no results.
If you find yourself saying, “I intend to, BUT…” hang in there. I’ll tackle your “buts”, so to speak, in another post in this series.
I know, it’s the pre-American Thanksgiving and pre-Christmas season, a time of year known for consumer excess. That’s precisely why I’m choosing now to launch a focus on savings. I want to prove to you, as I did with former clients, that it is possible for people to save money, at any time of year, if they’re persistent and determined.
That’s great news! Anyone can do this. The only exception is for people who are struggling to put food on the table. If the basics are a challenge, then saving money is not a priority. For everyone else, it’s doable.
Just to be clear, by “savings” I mean money you sock away in a savings account. The goodness won’t stop there; we’ll talk about next steps in a bit. First, though, pull money out of our day-to-day circulation and put it into an account labelled “Savings Account.” Even if it’s just $5 today, go ahead and do it.
In a couple of days, I’ll reach out again with a quick discussion of why simply paying less for items you buy doesn’t amount to saving money. For now, let’s focus on setting the intention and starting to identify funds to ship to the savings account.
Stay tuned for the rest of this multi-part series in which I’ll look at the best savings account, why the way you think about savings makes a big difference to your ability to save, and where, and how, to generate savings.
In his book Misbehaving: The Making of Behavioral Economics, Nobel Laureate Richard Thaler says the following about savings accounts:
Money in a checking account is slightly more out of reach than cash, but if there is money in an account labeled “savings,” people are more reluctant to draw that money down.
This can lead to problematic behavior when money is left in a savings accounts while credit card debt eats a big chunk out of a family’s finances, however we’ll address this issue in a bit.
For the moment, let’s focus on the fact that putting money in a savings account acts as a first line of behavioral protection against spending.
If you’re looking for inspiration on how to free up some cash, read this woman’s story of saving $845 per month! Just picture what an extra $10,000, invested every year, would do for your retirement fund!
Let’s have some fun with this. Look at it this way: What’s the worst thing that could happen? You don’t succeed in saving much, if anything, potentially maintaining your status quo.
What’s the best thing that could happen? You could surprise yourself and head into the Christmas holidays with a healthy savings account balance!
In other words, you have nothing to lose and everything to gain. Let’s do this!
I want to hear your stories of successes and challenges. Let’s help each other knock it out of the park before Christmas.
One small step at a time, folks. That’s all it takes to transform your finances.
I look forward to hearing from you.