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“The wise man saves for the future, but the foolish man spends whatever he gets” Proverbs 21:20 LB
The majority of US citizens have a desire to invest in the future; however, most do not. According to the The Department of Commerce; the personal savings rate in the US has now fallen to -2.2% (the lowest in 60 years). Yes, that figure is negative 2.2 %. The average US citizen is not investing for the future; they are reducing their cash flow position by 2.2 % per year. The average US citizen is spending more than they make.
Now that we have determined that most citizens are not saving; do you want to be like most Citizens? You need to establish a plan of investing. This plan starts with a good working budget. (See “How to Have a Successful Budget” in the featured articles section) Now that you have a good working budget; let’s develop a plan for investing. Your budget should help you determine the monthly investment figure that will allow you to meet your investment goals. A good rule of thumb is to invest 15 % of your gross income every year. If that number is not possible now; start where you can and build to 15%.
Investing should be split up into short term savings and long term savings. Short term savings should be readily available; set up in interest bearing accounts such as money market accounts. The first type of account is set up for emergency funds; minimum of $1,000. This money is used for things such as unplanned car repair, unplanned medical expenses, etc. Once your budget is set up; you will not need a $1,000 emergency fund. That money will already be set aside in your budget.
A secondary account is 3 to 6 months of living expenses; this money should also be in a money market account. This money should only be used for emergencies such as job loss or short term disability.
A tertiary account is tied to your budget for expenses that are non-monthly expenses; such as, insurance, auto repair, tires, or vacations. This money is also set up in interest bearing accounts that you will only remove for the specific item that the money is designated.
Your long term savings is where you will experience the most growth. You are planning for life in your later years. At some point you will choose to work less or none at all. Will you be prepared to live at the same standard of living that you live now.
Proverbs also tells us in Chapter 21 verse 5 that “Steady Plodding brings prosperity; hasty speculation brings poverty”. Consider where you want to invest your life savings very carefully. Avoid risky investments! How often have you heard the saying “If it sounds to good to be true; it probably is”; investigate all your investment opportunities.
Red flags should come up if you hear “that a large profit is guaranteed” or “You must invest now; the opportunity will be gone tomorrow” or “there is money in an offshore account; all I need is your bank account number”!
Another red flag is if there is no mention of the risk of losing your money. Any investment firm that has credibility will mention the risk of losing your capital. Be patient when investing and do your homework! Diversification is another step to a successful long term savings plan. There is an apparent risk in every investment. Choosing an investment adviser requires research as well. Does your adviser represent your investment goals or is his desire to see how much money he can make. Does he understand your investment strategies? We also recommend that as your money grows; you invest with more than one investment firm. There are many good investment firms; choose wisely!
Prioritize your spending. Prioritize you investing! Enjoy financial peace now as well as in your later years!
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