Ultimate Guide to Financial Stewardship – Saving

From the introduction (Link to Intro) we established the idea that being a good steward means increasing our wealth. Throughout this series we are going to look at several different ways of doing that, however, here we are going to specifically focus on growing our savings. Millions and millions of people do not have much of a savings account at all. A recent survey by the Federal Reserve (https://www.federalreserve.gov/econres/scfindex.htm) concluded the median individual under 35 had just over $3,000 in their savings. Shockingly, for median individual between 55 and 64 this amount was still only $6,400. For most, it is just a temporary holding place for their paycheck until they are able to spend it. This is a problem, and what’s worse is that I believe most American’s know it. Just look at the popularity of figures like Dave Ramsey or Robert Kiyosaki, there is a popular demand for help on financial issues and yet the world is getting better and better at convincing us to spend our money (or worse, spend money we don’t even have).

In addition to our desperately underfunded savings accounts, retirement accounts aren’t much better. The average retirement account for those age 65 to 74 (according to the same Federal Reserve Survey) has a balance of $426,070. The target amount for each individual at retirement varies depending on the desired standard of living but for the typical middle-class family this should be closer to $2,000,000 at retirement.

Well we know our starting point is somewhat disappointing, but what should our goal be? Should an individual under 35 aim to have $20,000 in savings? $50,000? What is the target? The answer is that the target is different for everyone, but the goal isn’t to achieve a target dollar amount saved. The goal is to grow in wealth. To have wealth to put to work for us we need to first establish a process for saving more than we spend. Rather than get in the weeds on the numbers lets keep it simple.

Consider your own finances. Regardless of your life status or age, this will apply. Do you have more money than you had 5 years ago? Consider your savings/checking account, your retirement account, your home mortgage, and any other debt you might have. Would you say you have grown your wealth? Do not fall in the trap of looking at your salary or hourly wage as a gauge, because that is wrong. You may certainly make more money than you did five years ago, so has literally everyone. My question is specific to your account balances. If you added up all your debt and assets, are you any better off?

You may find yourself making the excuse that your home value went way up over the last five years and therefore that accounts for some wealth growth. Wrong. While this may indeed account for a little bit of growth, home prices have skyrocketed nationwide and therefore the true wealth growth is minimal. I could dive into the effects of inflation and money supply growth but I will save that for another day.

If you are like me you may look at your various accounts and think, no, I really haven’t made much of a dent in growing my wealth. What I have done (and let me know if this sounds familiar) is take the nearly 60% increase I’ve seen in my salary over that time and used it to splurge on my standard of living. It’s a natural progression, right? We make more and feel like we deserve that espresso maker. I should drive a $40,000 car. I do need another gun. I easily can afford that Spotify subscription. I should live in a bigger house. I do need to wear more expensive clothes. I should be able to eat at more expensive restaurants. We talk ourselves into one more expense at a time. Years go by and somehow I feel like my monthly budget is just as tight as it was back then. Is this being a good steward?

I would argue it is not. What I should have done is establish a clear goal years ago and held myself to a standard. When left to our own devices we naturally spend what we have, whether we make $60,000 per year or $160,000 per year. But true wealth is not measured in salary or stuff, it is measured in an actual accumulation of assets. All the stuff we buy either depreciates rapidly or has zero retained value. The $40,000 car still ends up in the same junk yard 15 years later. The $120 jacket or dress ends up in a garage sale for $5 in three years same as the $30 jacket or dress. I enjoy eating out with friends whether it is at Applebee’s for $30 or the local premium steakhouse for $100. I can listen to music just the same on the radio as I can for a $10/month subscription. What we do is dump our money into stuff that won’t last and we let ourselves become convinced that we are somehow bettering our human condition. This is quite simply materialistic behavior. Sure it isn’t as bad as those that shop endlessly and have mountains of credit card debt, but it isn’t being a good steward with the great resources at our disposal.

So what do we do now? We’ve diagnosed the problem but we need help. We need to get our month-to-month, money in/money out balance fixed. I recommend creating a monthly budget. There are lots of ways to go about this. There are free budgeting apps that you can connect your various accounts through (Mint is my preferred choice) and set monthly goals. You can create a budget yourself on Excel or Google Sheets; for which there are plenty of useful templates to start from. The point is that you need to really get a grasp of what you spend your money on. You need to capture every fast food meal, every subscription, and every Amazon purchase so that you are honest about how much you spend. In my opinion this can only be achieved accurately through an app like Mint where you connect all your accounts and credit cards in one location. This will force you to assign every expenditure to a budget.

To look for progress years down the road, you need to look at your progress month to month. Financial issues do not iron themselves out over time. Human beings are prone to go after the short term satisfaction, you and I included. If you want a step-by-step walkthrough on creating a budget, search for a YouTube video or channel. There is nothing special about this step so anyone can do it. And trust me, even if it feels like a lot of work, you really need to go through this if you want to have great results.

Hopefully going through this process of creating a budget and organizing your actual expenses will reveal to you the number of things that your money goes toward that are absolutely not needed. You can rank your expenditures by importance if you’d like. Think through the scenario if you were to cut your salary in half and you absolutely needed to make due, what would you cut.

Next is the most important. Set a budgeted dollar amount to be your allotted savings for each given month. You absolutely must look at savings as a higher necessity than many of your optional expenditures. For me, my goal is to save $150 per week, or $600 per month, or around $7,500 per year, however you want to look at it. That is my committed amount I want to put away from spending. Everything I see in my budget says that should be achievable. If you alone or with a spouse have income in the $100,000 to $150,000 range, this should be very achievable. If you make less than $100,000 then perhaps shoot for closer to $5,000 per year in saving. If you make over $150,000 you likely can target $15,000-20,000 in savings or more.

The importance of this step cannot be oversold. To grow wealth you simply have to cut down what you allocate toward depreciating assets and increase what you set aside or allocate towards appreciating assets. Now that I have given you the overall goal with saving money, our next installment of this series will dive into the many ways we are wasting money. Hopefully that will help you determine many ways in which we can cut our budget. If you enjoyed this article and want to access more content like this, please subscribe below for email updates.

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