Earn, Save, Invest.
Repeat as necessary.
I think all three are important, though I'm more comfortable with saving and earning than I am investing. The day will come when I'm better at investing, and that day is just around the corner.
I've mentioned before that one of my goals for this year is to save 50% of my after-tax income. To me, this goal is really important, because I can remember times not so long ago where I couldn't save $100 from one paycheck to the next, and frankly, that's reprehensible.
Or at least a little foolish.
If, at the end of the year, I can see my bank account and know, really know, that I saved half of my income, I'll consider that a success.
Five Reasons to Save Half Your Income
No One Else is Saving For Me
I don't have a company match, I certainly don't have a pension, and I am a single woman in my 30s. If I don't save for my future, who will? My last name is neither Rockefeller nor Walton, so I don't anticipate “coming into money” when my parents pass away. Which is good, because I'm not ready for them to leave this earth anytime soon.
Saving Half My Income Keeps Me From Feeling “Flush”
I read enough other personal finance blogs to know for a fact that lifestyle inflation is easy. Especially when you start to have more money than usual, you can feel a little like a high roller when you see four digits or something in your account. Saving half keeps the “happy hour creep” from showing up. Not the guy, unfortunately. I can't figure out how to keep him away. But I can stay out of the bars more easily when I hide money and see that I only have enough for groceries for the rest of the month, and not enough to spend $20 three times a week with friends.
Saving Half Means I'm Prepared
I know some of you (Emily, for one) have targeted savings accounts, and that's great. For me, though, it's better to simply save half, live off the rest, and use my savings if I absolutely have to.
It's Absurd Not to Save
This one really hits home for me. I mean, am I really working my tail off just in order for some restaurants/grocery stores/hotel chains to make more money? No. That's ridiculous. I am the person in all of my friend groups that is earning the least. However, that doesn't mean much at all! My friends are spending more because they have more to spend. That's fine, and I hold no judgement. But I'm saving more, certainly on a percentage basis. And with some high earning friends, I might be saving more even when it comes to pure dollar amounts.
Saving Strengthens My Frugality Muscle
I was walking around a shopping district with a friend who was visiting, and we walked into Diesel. We joked that we were both amazed that Diesel still existed, since neither one of us had stepped into one of their stores in recent memory. He started looking at jeans, so I wandered into the women's section. I saw a cute pair of jeans — they were dark and skinny, for those of you who must know — and I thought, “I might try these on!” Then I turned over the tag, and saw the price: $228. I knew then that no matter how my income soars, I will never be the kind of girl that spends that kind of money on denim.
Changing My Saving Mindset
I used to be frugal out of necessity. When you simply don't have the money, it's not an exercise in deprivation for deprivation's sake. “When I have more money,” I'd think, and fill in all kinds of endings to that sentence. But now?
I end the hypothetical more money sentence with, “I will save 60% of my income.”
Sure, YOLO, and all of that (does anyone else think of those chocolate covered caramel candies when they see that word? Rolos? no? just me? carry on, then) but life is about more than living paycheck to paycheck. I'd rather skip the $20 meals in order to save up for a memorable trip.
And William from Drop Dead Money helped me understand something really important. He said that we are either debtors or investors. Many people get out of debt just in time to want to upgrade something expensive, because making payments on debt is something we're used to and comfortable with, and the freedom of no longer having any debt is hard and uncomfortable for most.
Do you want to build the habits of your millionaire neighbor, or do you want to be like the Joneses?
I'm saving in order to switch my mindset. I'm saving because I'm the last of a long line of savers. I'm saving because I want to be comfortable.
Are you saving?