Whether it's for an emergency fund, a college education, or a comfortable retirement, it's important to have savings. It's a crucial step in taking control of your financial life and can even have positive effects to other areas such as your emotional and physical wellbeing.
The amount each person should save will depend on a number of factors: income level, rate of returns on investments (ROI), the desired retirement age, and lastly, the age you start saving.
The current trend is that most people start saving in their late twenties or early thirties. But according to a 2013 article published by Forbes, many US citizens are failing to save enough for a comfortable retirement mostly due to their failure to plan for it. The field of behavioral finance has a name for the culprit, self-control bias - a condition wherein people lack the self-discipline to pursue long-term goals.
Different people also have different goals for their savings. Aside from saving for a house or money to pay for higher education, there are two other worthwhile saving goals the average American should consider: investments and retirement.
Saving for Retirement
If your goal for saving is retirement, your savings rate will be lower if you retire at a later age. In an interview conducted by a CNBC reporter with Richard Coppa, the managing director for Wealth Health LLC, Coppa explains how "it is never too early to save for retirement." He also adds that "creating a mindset starting early is important and creates a path to successful retirement planning."
When a person decides to build up retirement savings at a young age, there is less financial pressure and more chances of early retirement. If you save in tandem with your income increases, you are more likely to be able to retire earlier in life.
Saving to Invest
Saving to invest is still saving. While it's true that everyone ought to have a certain amount of cash savings on hand for emergency use and retirement, it makes sense to allocate a portion of that into investing, especially if your goal is long term.
This article posted on MoneyAdviceService.org gives valuable advice on what you should do with your money depending on the type of goals you have and what effect you're hoping to achieve.
Entrepreneur contributing writer, Grant Cardone, believes that "the only reason to save money is to invest", which he credits for his achievement of having become a millionaire by the age of 30. "Never use these accounts for anything, not even an emergency. This will force you to continue to follow step one (increase income)," he also adds.
The Takeaway
Saving is a logical and practical decision for anyone, regardless of age, but the advantages of starting young can lead to more financial freedom and can open doors to investment opportunities that will double or triple income potential.
Whether it is for a comfortable retirement or an investment goal, your ability to control the coming and going of money will greatly affect how the next few years of your life will look like.
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