How Much Should You Sacrifice Today To Ensure A Secure Tomorrow?

Every few months, you are sure to run across an article talking about the woefully inept savings rate plaguing our country. The data is disheartening. Collectively we save about 3% of our income. Just 30 years ago, the personal savings rate was triple where it is today. So, why do we have such a hard time saving for the future?

It is a great question that researchers have been studying for quite some time.  Some believe it is a behavioral issue.  There is quite a bit of evidence to suggest this is the case.  For example, some studies show that participation in 401(k) plans increases dramatically if you automatically enroll someone in the retirement plan and make them opt-out if they don’t want to participate (versus the other way around).  Other studies show that when people see an aged picture of themselves, they tend to save more money, suggesting that people tend to have a hard time identifying with their future selves.

In our own practice, we have often struggled with the savings question.  When working with clients, we will clearly lay out how much they need to save each month or year from accomplishing the goals they have told us are important to them.  Many times those savings goals go unmet.  We have realized that the goals they initially stated were important to them and maybe overshadowed by something more important:  enjoying their lives today.

And that is where the conflict lies.  How much should you sacrifice today to ensure a secure tomorrow?  I’m not sure we have a great answer for that, but we do have some suggestions:

  • Develop a realistic plan– understand where you will most likely be in the future if you stay on your current path. If you are short of your targets, be careful about just assuming you’ll work longer.  A recent study showed that while 75% of workers expect to work until at least 65, only 23% actually work past that age.  The two major reasons for retiring early are health problems and company downsizing.
  • Automate things as much as possible– we believe the research around automatic savings in retirement plans can apply to other areas of your savings. Have a set amount go from your paycheck into an account that can’t easily be accessed.  Better yet, if it can go directly into an investment account, you accomplish two tasks.  First, and most obvious, you save for the future.  Second, you learn to live on less.  That may be more important than actually saving, especially as you approach retirement.
  • Celebrate your success– instead of an all-or-nothing approach, create some savings milestones. Once you hit a certain level of savings or save a specific percentage of your income, treat yourself to something.  A balance between the future and the present is important to keep your savings strategy going.
  • Give more to those in need– we’ve written before how giving to charity can take the focus off of “stuff” and more on others. If you are interested in how this can help you save more, you can read more here.

As in most of life, extremes are rarely good.  If you save every penny you earn, you are most likely not enjoying your labor’s fruits and believe that money will provide you security.  Conversely, if you spend every cent, there is a good chance you have a serious case of “keeping up with the Joneses” and believe that buying things will provide your contentment.  Balancing enjoyment for today with securing tomorrow is the key to serenity with your finances.

Information contained herein has been obtained from sources considered reliable, but its accuracy and completeness are not guaranteed. It is not intended as the primary basis for financial planning or investment decisions and should not be construed as advice meeting the particular investment needs of any investor. This material has been prepared for information purposes only and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Past performance is no guarantee of future results.

Recent Insights

Behavioral Hacks for Your (Financial) New Year’s Resolutions

With the end of the year rapidly approaching, the time is once again upon us to set our New Year’s resolutions. Many of us will make our well-intentioned resolutions to get out of debt, increase our savings, or stick to a budget, only to find that we have fallen right back into our old habits by the time March rolls around. Sticking to New Year’s resolutions can be incredibly challenging, particularly when it comes to our finances. However, there are some tricks you can use to not only help you stick to your resolutions, but also set yourself and your family up for a successful financial future.

Talking Money this Holiday Season

With the fall and winter holiday season rapidly approaching, many are prepping to host their traditional family gatherings in new and creative ways in light of the COVID-19 pandemic. While the settings may be different this year, and we may be gathering virtually, one thing is unlikely to change: when family and friends gather, uncomfortable topics will come up in conversation. One of those topics is likely money and personal finances. In July of 2019, TD Ameritrade conducted a study that asked participants about their comfort levels discussing certain issues, primarily focusing on money/personal finances.
Financial chart and data with calculator and pen on wooden desk

8 Credit Building Tips for the Modern American

Here are some helpful tips to help you build and repair your financial reputation for a long-lasting impact.