Saving money is very important. You can have a high degree of success in your career and make a nice salary, but if you’re not saving much, you’re not doing enough to help you long-term financial prospects. Start saving, and you’ll be building for your future needs.
Now, I did recently post about how it’s important to make more money. In that post, we explored the idea that if you want to save more money, you should make more money. I do think that’s one way to go, but the main idea behind that post is that we have to focus on protecting and growing our income. In other words, how can you possibly save money if you’re not making much (let alone any) money in the first place?
So we need to make money and make sure that we have an income stream. That’s Step One. But it doesn’t stop there, and that’s where I think many people forget that there is a Step Two: saving money. It’s clearly a pillar of personal finance.
Here are 3 ways I think many people get sidetracked:
1) Equating income with success. One way some folks get sidetracked is that they equate success with how much money they make. They can grow their salary to a nice figure over the years, and then feel like they’re successful. Now, this type of achievement and place in life is nice, and something that one can be proud of. However, many people then get materialistic and end up spending a high percentage of this money, thinking that they worked hard for it so why not enjoy it by purchasing fun things. You know, like traveling to far-flung places, buying expensive cars, pricey shoes, all the newest gadgets, etc.
2) Not realizing that money can make more money. A second way I think some people get sidetracked is the notion that they lose sight of the power of compounding. If you start with a small amount of money, and invest it properly, it can grow to a big amount in the future. We’ve all seen such examples, right? The money you save now will fuel your efforts to grow your overall net worth in the future.
3) Forgetting that there is a day of reckoning for all of us. Now, what I mean is that there will be a day that we won’t be working anymore. As we get older, we either A) won’t be able to work anymore, or B) unable to find work at an old age. We won’t work forever, so don’t plan on working through old age. Oh, and there are things besides retirement that we might want to save money for as well, such as health care, helping our kids with educational costs, and so on. The day will come for each of us.
Bottom line: While we need do need to first make sure that we focus efforts on making money – so we have something to save in the first place – we can’t drop the ball on savings. It’s like running down the football field and fumbling the ball at the 1 yard line. All your effort means a whole lot less if you don’t have something to show for it. The best thing to show for it: financial freedom!