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Cutting Expenses Doesn’t Equal Saving Money

You will not develop regular savings habits by cutting expenses. You have to be proactive in designing a permanent savings plan for a lifetime.

When Money is Tight

Most people, at one or more times in their lives, have periods of “tight money.” This situation occurs for a variety of reasons, to include overspending, college education expenses, medical bills, temporary loss of employment, etc. At other times, individuals decide that they need to save for some “large ticket” item, perhaps a home or a new car. Whatever the need, cutting expenses becomes a necessity. Budgets are revised, and all non-essential spending is cut.

The New Budget

If the new budget is designed in order to pay off accumulated debt, then all of the overflow cash is obviously placed on that debt. If the new budget is designed to allow savings for specific items, then all overflow goes into a separate account for that purpose. In both instances, expenses have been cut; however, cutting expenses doesn’t equal saving money.

A Definition of Saving Money

In its strictest sense, saving money simply means to put money aside. If money is put aside only to be able to purchase something down the road, then it is not truly savings. The broader and more important aspect of saving money is to systematically place an amount of income into a savings or investment program for the future. The savings is not earmarked for anything specific, but, rather, for future comfort and lifestyle.

Saving for the future requires good self-discipline and a budget designed to accomplish it. A wise man once said that everyone should pay him/herself first. This means that out of the regular monthly income, some amount, no matter how small, should be placed in a “permanent” savings. Many financial planners recommend 5% of the net income as a minimum. If an individual or family is able to do this over a period 20-25 years, a huge nest egg is accomplished with minimal pain. Savings generates interest. When that interest is paid to the consumer and is left in the savings, it adds to the total savings amount. The next interest payment is paid on the total balance, is left in the account, and so on. As interest compounds, it is truly amazing how much a small savings plan can accumulate over the long-term.

People who develop the habit of saving early in life find that they have a fuller, much more comfortable retirement. The savings may have begun as a very small amount, but the important thing is that the habit of putting something away was being established. As income grows throughout adulthood, the amount increases. What most of these great savers state is that they never missed the money, so long as it was taken out as soon as the income arrived, usually in the form of a paycheck. They simply counted the savings as a bill that had to be paid each and every month.

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