Broker Check

Part 12: Saving

October 05, 2021

Once we have the appropriate protections in place (see Part 10 & 11), we can then proceed to start saving.  One of my favorite examples that illustrates the importance of saving comes from Genesis 41.  In this account, Joseph interprets Pharaoh’s dream and warns him that Egypt will see seven years of prosperity followed by seven years of famine, and that they need to begin planning now to save up to endure the coming years of famine.  Because of Joseph’s savings plan, he literally saved Egypt.  Now, I get it, it’s easy to be able to plan for something when we already know it’s going to happen.  It’s not as easy when we tend to be short-sighted, and don’t want to see past the here and now.  But it is inevitable that we will all go through challenging times in our lives, and when things are going well for us, we must save to be able to endure the rougher waters life throws at us.

The Bible describes one who does not save as foolish.  Proverbs 21:20 says, “Precious treasure and oil are in a wise man's dwelling, but a foolish man devours it.”  It is foolish of us to choose to live paycheck to paycheck, spending it all, if it is within our means to set some of that aside for the unknowns.  Cars break down, homes need repairs, people lose their jobs…  I encourage you to have at least 6 months (9 to 12 months would be even better!) of living expenses saved in a liquid account.  Liquid means that it’s easily converted into cash in hand without taking on loss.  This could be a bank account, money market, or online savings account. 

If you don’t have an idea of your monthly living expenses, now’s the time to start tracking what you’re spending each month.  Budgeting is never fun, but it’s necessary to understand where your money is going to (and an important part of being a good steward of God’s money).  Once you have your emergency fund in place, then you should start saving more aggressively for other goals, like retirement, or a large purchase.  There’s an exception to this rule:  If your employer offers a contribution match in the company’s retirement plan, you should always contribute at least what’s needed to obtain the company match while also building your emergency fund.

To realize the full value of saving, we must save as early in our lives as possible.  In today’s world, this isn’t easy, as many young people are just leaving college burdened with mountains of debt, the last thing on their mind is saving for something so far off.  They have a hard time being able to see over that mountain.  As mentioned in the chapter on debt, this is a heavy burden and the pros and cons of this should be seriously considered, before blindly taking it on. 

Benjamin Franklin understood this important concept of saving early, which is called compounding interest.  He is known to have said, “Money makes money.  And the money that money makes, makes money.”  Here’s his real life example.  At his death, he gave the cities of Philadelphia and Boston around $4,400 each.  He had the donations put into trusts, which stipulated when monies could be taken out and for what purposes.  At the end of the trust’s 200 years, Philadelphia still had $2,000,000 left and Boston had $5,000,000!  It is no wonder that Albert Einstein calls the power of compounding interest the 8th Wonder of the World.

Ask anyone who has delayed saving for retirement and they painfully understand this concept.  Think of how a small snowball in your hand becomes a large boulder of snow.  The more time you have to continue rolling it, the bigger it gets. 

Here’s a hypothetical example of two 25 year olds, both make an average of 6% rate of return throughout their lifetimes:

Mike decides to save early, contributing $5,000 per year to his retirement.  After just 10 years (at age 35), Mike stops contributing.  In total, Mike saved $50,000.  He allows his money to continue to grow through the power of compounding interest.  At age 60, Mike has over $280,000.

Molly decides not to start saving at age 25.  She’s a free spirit, looking to just enjoy life.  But at age 40, she realizes retirement is getting closer and starts saving $7,500 per year to her retirement every year until age 60.  In total, Molly saved $150,000; three times what Mike saved.  However, because Molly didn’t embrace the concept of compounding interest, Molly has a bit over $290,000 saved at age 60.

Because Mike saved early, he has practically as much as Molly has while only having to save 1/3 of what Molly had to. 

When it comes to saving, save early and save often.

If you need guidance in savings strategies, don’t hesitate to reach out to me. or 716-707-1818.

Next Time:  Biblical Investing Concepts

The views stated in this letter are not necessarily the opinion of Cetera Investors and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.