The New Year is almost here, and there is one thing you can start doing today that'll help secure your financial future for 2015 and beyond.
What is that? Simply put, start saving and investing. We'll tell you how.
New Years in San Francisco. Source: Flickr / Christopher.Michel
The power of saving
A recent article in The Wall Street Journal, begins by noting, "After a flirtation with thrift after the recession, young Americans have stopped saving."
The article, "Younger Generation Faces a Savings Deficit", cites a recent study from Moody's Analytics that found that adults under the age of 35 have once again begun spending more money than they make. The study also found that this negative savings rate "compares with a positive savings rate of about 3% for those age 35 to 44, 6% for those 45 to 54, and 13% for those 55 and older."
Source: Flickr / by KJGarbutt
Part of reason behind the falling savings rate is the increased burden of debt like student loans, but the article also cites many have forgone the thrifty tendencies that characterized their spending habits after the recession.
But it's not only the Millennial Generation that is saving less; it's also all those under 54 who have watched their savings rate fall in recent years. In fact, a survey in August revealed that more than one in three Americans haven't begun saving for retirement.
However, this doesn't have to be a problem that persists. And there are a number of tips that can be used to start saving more today.
Ways to save
The first and most important thing to do is make a budget. This can be done in one minute.
Take the time to guess what you spend, and then write what you'd like to spend. Next, take a look where you money has gone in the past and present. Then, look at how your spending compares to how you guessed you spent your money and how you'd like to spend your money.
Then, see where savings can be had. It could be things like cutting cable, eating out less, buying store branded items at the grocery store, or making fewer trips to the mall.
After that is done, begin taking a set amount each month — no matter how big or small — and saving it.
The power of saving
When discussing the biggest mistake we make when it comes to money, Warren Buffett said:
I think the biggest mistake is not learning the habits of saving properly early. Because saving is a habit. And then, trying to get rich quick. It's pretty easy to get well-to-do slowly. But it's not easy to get rich quick.
So the next step isn't simply putting it into a savings account, but putting it into the stock market — which has historically been the best option for investing and growing money.
Warren Buffett. Source: The Motley Fool
Consider for a moment over the last 85 years, the S&P 500 index on average has returned 9.6% each year, but currently the average savings account pays just 0.12% in interest.
Pretend we have an individual, Sam, who is 28 and makes $35,000 a year. If Sam saved 5% of what he made, his salary grew by 3% each year, and he invested it in the stock market and achieved these kinds of returns — how much money do you think he'd have when he retired 35 years later? $200,000? $400,000?
The total money he saved out of his paycheck would stand at roughly $110,000 but thanks to the beauty of compounded stock market returns his retirement account would sit at $703,698.
Numbers like a 5% savings rate and a 9.6% growth rate don't sound like much, but compounded over decades, they really start to add up in ways that seem unimaginable.
So no matter where you find yourself on the saving spectrum, if you're looking for a resolution to start 2015, taking the time to make a budget, pledging to stick it, and starting to invest those saving is a great place to begin.
