My First Dollar

Do you remember your first dollar? When our parents handed it to us we spent it in such a flash it may have not left a memory. Now, if I asked you where was the last dollar you spent –you may barely remember that either. Money flows so freely through our hands because it takes very little effort to spend. When I am asked what is the one thing that equates to someone’s financial success, hands down it goes back to how they handle their dollars. It always comes down to how much out of each dollar you are saving. The question you have to ask yourself is, what is at stake if I don’t save enough?

Working Longer – Nearly all of us dream about retiring early. However, while we’re in our 20s and 30s, it is easy to think of retirement as a distant event. Why prepare now when retirement is miles down the road? And yet, saving the right amount is important because if you procrastinate retirement may not be miles away…but rather light-years away. Compound interest can help our savings grow exponentially, but the flip side of not saving enough is having to delay retirement.

More Risk – Over the last decade, I have watched investors take far more risk than they were prepared to, or wanted to, because they felt pressed for time. They felt ill-prepared for retirement and, instead of trying to save more, they pursued every avenue for a higher return. But if you save the right amount on a regular basis, you won’t have to fixate on trying to make a higher return. If you save enough from the start, you can meet your retirement goals in a predictable fashion. The stock market is not your slave; it will not go to work for you on demand. The market can be  manic depressive on its best day.

Working Harder – It’s true you can work smarter instead of harder.By saving the right amount now, you are doing yourself a favor for the future. Saving is akin to an airplane leaving the runaway: It takes the majority of the effort to get the tires off the airstrip, but thereafter easily rises up to 10,000ft altitude. The first 500 feet always take the most effort, but it is smooth sailing from there on.

Potential Threat of Poverty – When a career setback happens, such as a layoff, pay cut or a disability, it can leave families grasping at straws while trying to make ends meet. However, if you’ve been saving 20 percent of your income, you would then have built in a cushion to absorb setbacks and misfortune. When tragedy strikes, you would have the skills to prioritize frugality and easily adjust your standard of living to a new normal. When you track where your money is spent, it is easier to find the areas to cut back.

Chasing the Carrot – This conversation happens every weekend at family reunions and backyard BBQs. The dominant financial discussion is how much someone makes or will earn with his new job. We measure how well our brother-in-law is doing based on the income he pulls down. Our culture puts income on a pedestal, and yet this misses the point entirely. It doesn’t matter how much you make; what matters is how much you save.

The next time you hand a child a dollar, guide them to save 20 percent of it for a rainy day. Now, you may say – it’s only a dollar, so it’s not a big deal. But when do you would want them to start understanding the value of a dollar? When they are 55 and it is too late? Draw a line in the sand today, and begin saving 20 percent of your income.

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