Is Saving Money in the Genes?

By Tim McMahon

Saving money runs in families. Family values and traditions mold the way you think about money. Chances are if you came from a family where saving was important, you will think saving is important. But if your family spent every penny they had you will tend to be a spender too. However, there are a few rebels who will tend to do the exact opposite of what their families did.

Saving is also cultural, in many cultures saving is very important. In Japan, for instance, even though the interest rate on savings has been at or near zero (0%) for many years, the Japanese still have one of the highest savings rates in the world. Why would they save money if they weren't earning interest on it?  Simple, because in their culture it is "the thing to do".

In other countries quite the opposite is true. The U.S. for instance has a near zero percent savings rate with a large percentage of the population being one or two paychecks away from disaster. The savings rate for many families in the U.S. is actually negative (spending more than they earn) with people borrowing and refinancing their homes so they can spend 110% of their annual income. Obviously, saving money is not a priority with them, having "things" is a higher priority. The problem with "things" is that they need maintenance, storage space and worst of all after a surprisingly short time they tend to lose their luster anyway.

It's all in your head

The key to a sustainable money saving program is to find the balance between wasting money and being stingy. The first obstacle to developing a good saving program is all in your head... it is the belief that saving money is no fun. This attitude is generally expressed by the "spenders". Savers on the other hand actually enjoy saving money, some actually make it a game. Bargain hunting becomes a sport for them. Others simply enjoy watching their bank balances grow. But like dealing with any other challenge, saving money is all about attitude and determination. The more you put your mind to it the easier it is. Saving money may not always be easy, but approached the right way, it can become a hobby that's enjoyable as well as beneficial.

The first key is to realize that saving money is important. People from spender families may not place a high priority on saving and simply prefer to "enjoy life" or "take life as it comes". Here are some reasons to become a "saver" rather than a "spender".

1) Saving money is a necessary requirement for building wealth. Face it, the odds are against a rich relative leaving you a fortune or you winning the lottery. You will never have money unless you take responsibility for your life, grow up and start saving it.

2) Saving money is something that everyone should do for a rainy day. Imagine the peace of mind in knowing that if the washing machine or the car breaks down you can just get it fixed. Just yesterday my heat pump went out it was 80 degrees in the house. But because my emergency fund is in place I didn't have to wonder how I would pay for the repairs. I just called the repair man and said come out. No Worries, Mate.

3) Social Security is a life boat not a cruise ship. You have to have a private retirement program in place without it your senior years are going to be miserable. We've all heard of the horror stories of retired folks facing the choice of living on cat food or going back to work at McDonalds. I prefer to not have to make that choice so I will prepare now.

Once you decide to move from being a "spender" to being a "saver" the battle has just begun you have to develop both skills and habits. When I called the repair man, being the "saver" that I am when he asked if I wanted him to come that night (for an extra fee) or if the next morning was OK... I chose the next morning. I figured I could live with fans for one night in order to save a few bucks. Saving money is a habit, it is a matter of correcting many small problems.

Saving Money is as important as Making It.

Imagine trying to fill a large bucket with hundreds of little pinholes in it. If you have a large enough input (say a fire hose) the bucket will fill up but as soon as you turn off the water the bucket will leak all the water out again. But if you plug all the leaks you don't need as much water to keep it full. A simple garden hose or even a drip will eventually fill it up.

There are numerous stories of ordinary people, teachers, bus drivers, janitors, etc becoming millionaires. They just decided to save more than they spent and invested in safe investments and before long their money was multiplying itself and they were on their way to becoming a millionaire. One good place to begin saving money is to have an emergency fund.

Saving money is not a matter of math. Saving money is a skill that can be developed. Once spenders realize the necessity of developing a good saving plan, saving money becomes a habit, that becomes a self-reinforcing cycle. You save a little and it begins multiplying itself and you can save more and more. Just knowing it's possible can be enough to get you started.

One good way to start saving money is the --pay yourself first rule. Before you even get your paycheck have a payroll deduction made. (Why do you think the IRS gets its cut first? Because it knows that is only way it can be sure to get it at all. Why should you treat the IRS better than you treat yourself? You should save as much as possible in before tax dollars. Before Uncle Sam gets his hand in your pocket, fund things like IRAs and other before tax vehicles.

The next step to saving money is to plug the leaks.

One place to look for money leaks is your insurance policy. Your first need is basic coverage. Basic no frills life insurance is called term insurance. When you first start that is all you need. As you get other savings vehicles in place you can look into fancy insurance investments but not until you have all the basics covered. Typically, term insurance will cost less than half of what the fancy "whole life" will cost you. So you can start your savings program with the other half. Put the other half in your "rainy day broken heat pump fund" before giving it to your insurance agent.

Once you have, basic insurance and a rainy day fund you can work on a retirement fund, a children's education fund and perhaps even a Long-term care policy, if you end up in a Nursing Home. But to fun all of these safety nets you need to be spending less than you are making.

Saving money is not just putting all your income into your saving account you need to learn all the different options and be creative. Learn to treat your money well and with respect and it will treat you well. Saving money is a first step toward wealth. You'll find that when you set a goal that is important to you, saving money is really not that hard. Of course where you put it after you save it is equally important. Putting it into a leaky investment bucket is just as bad as leaving it in the leaky spending bucket. So the next skill you need to master is investing.

Investing is not all that difficult either. You emergency fund should be liquid and readily available probably in a simple savings account. The next thing you need is a long-term savings program perhaps in a CD or Money Market fund. once you have those funded, start with a good mutual fund look for one with a high "MorningStar" rating and a good track record. Once you have that you can begin with other investments but remember you want to be sure to protect your "nest egg". It is very easy to lose a significant portion of it if you aren't careful.

Saving money is such a key skill that if you learn it, you may not need to have a whole lot of other skills and you can still do well in life. Like most things, the trickiest part of saving money is knowing how to begin. But like Nike says "Just Do It". Yes you will make mistakes but you will still be way ahead of where you would be if you do nothing. Saving money is only the first step -- then you have to hang on to it but once you make up your mind to start you are 90% of the way there.