The average person would not be able to live for more than three months if they were unable to draw an income. This means that they are dependent upon insurance, government programs, friends and family.
The primary goal of savings is to provide a much higher level of personal independence and security.
You can make two million dollars a year but if you spend 2.5 million dollars, it doesn't matter how much money you made, does it? You will be saddled with debt.
One of the key components to long-term wealth building is the discipline of saving money on a regular basis. One simple difference between the philosophy of the rich and the poor is:
the rich save/invest their money and spend what is left.
the poor spend their money and save/invest what is left.
Investing involves risk - calculated risk - and the possibility for much more reward. Investing is the
maximizing of capital gain and the harnessing of compound interest. Saving is not the pursuit of aggressive growth of our resources. Saving and investing are done for different reasons and with different desired goals and outcomes.
Saving is an act of discipline. No matter how you slice it, saving money on a regular basis is a
discipline. It is not "dependent" on income. Pick up any number of magazines and you can read about an athlete who made twenty million dollars over seven years and is now bankrupt. It isn't a matter of money. It is a matter discipline. On a regular basis, put a little away until it builds up. That is the savings game.
Saving builds self-reliance. Our ultimate goal financially should be to become independent, without
relying on anyone else. We should be able to pay our bills and long-term, live off of the interest of
the savings and investments we have. A solid base on which to build the rest of our financial independence.
So, through our diligent saving, we rely on what we have accrued. Then we become more able to help those in need. We are now the lender and not the borrower. A good savings goal is to have at least six months of living expenses set aside. For example, if your expenses are $2,000 a month, then you should set the amount of $12,000 as a savings goal. This gives you the ability to be self-reliant for those times when you may need it, and the peace of mind knowing you would be able to handle challenging circumstances if necessary.
Saving money in a standard savings account or money market account will pay a nominal sum, say 2-4 percent, depending upon interest rates. There is something called the rule of 72, which says that whatever interest rate you average, divided into 72, will determine how many years it takes to double your money. So, even at 3 percent, your money will double in 24 years.
That isn't extraordinary by any means, but it does happen. Your money is working for you. You get more money simply by letting it sit there and letting compound interest do its work. With saving, this is a
seemingly small beginning, but it is the strong foundation of security that allows you to build the future of your dreams and goals and provides the anchor to help you weather financial storms that can come your way.
The exciting news is that you now have a solid base to start your investment drive.
I wish You Success.
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