How to Kickstart (and Automate) Your Savings!

“As important as I think (saving) is, national savings has always been relegated to the B list of economic measures.”

Edward M. Gramlich, Board of Governors of the Federal Reserve from 1997 – 2005

Believe it or not, there was a time not long ago when Americans tracked their savings instead of their credit card debt! Now saving money seems like a thing of the past. Americans set aside money, and yet it goes straight into mutual funds, often by way of 401(k)s and other qualified retirement accounts, where it is no longer liquid, guaranteed, or under their control.

These days, we are so eager to run that we forget to walk first! We neglect to save in order to “invest,” when BOTH are necessary. After all, saving money provides the crucial foundation that allows us to then invest successfully.

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In Pound Foolish by Helaine Olen, the director of Vanguard Center of Research, Steve Utkus, points out that before the rise of the financial planning industry in the 1970s, the cornerstones of personal finance were “savings accounts, whole life insurance, and the home mortgage.” At the time, most people’s number one fear was public speaking, not illiquidity.

However, personal savings peaked in 1975, when the average household socked away 14% of their earnings. That’s a stark contrast compared to 2019 Bureau of Labor and Statistics data. While the average household made $78,635 annually or $67,241 after taxes, they only had $6,017 left for savings or less than 10% of the average household income.

How Credit Overtook Savings

For years, credit drove the economy. However, it came at a steep price. Consumers grew complacent with easy credit terms and financing their purchases. According to Jonas Emmerraji, a contributor to Investopedia and Entrepreneur Magazine, “As the credit market seized, and consumer credit lines began to shrivel, people started to realize that the credit limits on their accounts weren’t the same as cash in the bank.” 

By 2008, the trapdoor of credit caught the whole country off-guard as the economy crashed, foreclosures soared, and many found themselves unemployed and/or insolvent. If a family did manage to create a diverse retirement portfolio, they may have tapped into their savings to help their adult children. The 2020 pandemic was another curveball. Job layoffs, an economic shutdown, and a volatile stock market made savings difficult for many. Or, families may have withdrawn money to cover business expenses during Covid closures and stay-at-home orders.

An additional concern in 2021 is how we view credit. Banks have lucrative offers that are often misleading. While purchases with points can help secure discounts for hotels, flights, gas, and groceries, credit cards are still a form of debt. A sudden illness or job loss can cause a person to quickly fall behind on payments. And, with double-digit interest rates, credit cards aren’t a risk you should take. 

A more proactive approach is saving. Despite the challenges, kick-starting your savings with a proven strategy can uplift and empower you. What’s more, you’ll shift from a scarcity mindset to Prosperity.

Personal Savings: A Foundation of Prosperity

An active and consistent savings strategy is KEY to economic health. It provides short- and long-term benefits, such as:

A Robust Emergency/Opportunity Fund 

Relying on credit can increase debt, while withdrawing from a 401k account in an emergency comes with stiff penalties and taxes. The bottom line is that cash is a necessity. Ample cash reserves allow us to weather emergencies without falling into the debt dependency trap (credit cards).

Liquidity for Opportunities

We often save money “in case of an emergency.” However, we should also save “in case of opportunities”! While credit cards have lucrative cash-back offers, when you factor in the interest rate, membership fees, and late fees if you fall behind, you start to realize that benefit is really a liability. 

With savings habits and personal finance, your personal saving objectives are better when you seek expert advice. Typical advice is to put money in the stock market, and yet, there are many other investment opportunities. The key is having the liquidity to choose what you want.

Weathering Economic Downturns

Cash reserves are essential if (or when) the bottom falls out of the financial markets. Fractional reserve banking, for example, poses serious concerns about the stability of banks. 

And while economic stressors are difficult for everyone, those with cash can weather the storms much more easily.

An Upward Spiral Toward Financial Certainty

According to a 2013 article in Forbes, there are four top factors in upward mobility: education, dual incomes, continuous income generation, and savings. A household that is in the habit of setting aside cash will have more money for education and training. Better training leads to a better career or business opportunities. A higher income is achieved, and more money is available for savings. It’s a pattern that builds upon itself exponentially!

Saving More Money Saves the Economy

When people save rather than depending on credit, the economy has greater stability. It is not affected by ebbs and flows with interest rates, market volatility, or spending that will halt suddenly if credit standards tighten up. Economies fueled by credit are susceptible to instability and economic “bubbles” that eventually pop.

Time to Automate Your Savings!

“Saving money is something we can control. It may not be easy…but saving money is possible.”

— Kim D. H. Butler

Americans spend most of their extra money on vacations, their pets, alcohol, coffee, and eating out. As such, it’s a natural tendency to spend more as we earn more. This approach doesn’t move us ahead as much as it puts us in a perpetual holding pattern, running ever faster to keep up with demand and from backsliding into poverty.

That’s why saving is crucial.

Saving is a progressive action rather than a defensive one. It asserts self-discipline to shift from subsistence living to comfort. 

We recommend setting aside up to 20% of your earnings for long-term savings. It requires a lot of sacrifices and cutting back on luxuries. And yet, growing that reserve at the 20% level will progress towards comfort* then onto prosperity while creating a cushion that will help break any financial fall.

If saving 20% seems like an impossible goal right now, start smaller–and gradually work your way up. Better yet, learn to automate your savings, so that it becomes a habit that you barely even notice. One of our favorite ways to do this is through whole life insurance, which is savings that shows up like a bill. So long as you “pay your bill,” you’ll accumulate cash value, which is liquid, certain, and grows more efficiently than the bank!

5 Tips to Jump-Start Your Savings

1.) Track what you’re spending now.

Once you know where your money is going, you can determine where you can afford to adjust your spending. It’s important that you not only track your bills but your day-to-day spending as well. How much do you spend on lunches or little things that add up? From there, you can make adjustments and improvements!

Examples include:

  • Switching from cable to a few select streaming services
  • Meal prepping your work lunches
  • Choosing one or two specialty coffee days, drinking coffee at home the rest of the time
  • Saving first, buying luxuries with what’s leftover

When adjusting your spending, don’t think of it like a diet! You’re not “cutting out” things that bring you joy. Instead, you’re making informed decisions to both enjoy those things in a more balanced way.

2. Increase your cash flow.

A tried and true way to increase your savings is to increase your cash flow–so long as you use it as a license to save…and not to spend. 

Rent out your vehicle for an extra $350 to $1,750 a month on sites like Turo. Join forces with a property manager and buy homes to rent out in neighborhoods with great rental rates. Adding smart features and upgrades can also increase your monthly rent rolls. Ask your insurer for home and auto discounts (age, no claims, policy duration, bundled plans). Comparison shop and use coupons, discounts, and rebates. (However, the trick is to use coupons for things you were already intending to buy.)

For more ideas on increasing your cash flow, check out our Cash From Scratch Guide.

3. Make saving automatic.

Automated savings is where whole life insurance shines (among other aspects). As we mentioned earlier, whole life insurance shows up like a bill. You can choose to pay premiums monthly or annually, and it feels like any other bill. The secret is that we’re naturally more invested in paying our bills, because paying our bills keeps our credit in good standing and gives us access to things we want (shelter, utilities, etc).

While savings that appear in the form of a bill might not sound appealing, this can prevent the temptation to spend. And paying your premiums helps you build cash value. Cash value is one of the living benefits of whole life insurance. With it, you can grow your cash more efficiently than the bank, through the power of compounding interest. To learn more about the saving component of whole life insurance, read Live Your Life Insurance.

4. Out of sight, out of mind.

If you would also like a savings account with the bank, consider opening that account at a separate bank or credit union so that you have liquidity without making access to your cash too easy. If you treat this account as an expense, you’re less likely to see it as money you can use anytime you want.

The cash value in your whole life insurance can also function this way. While you don’t have to jump through many hoops to get access to this cash value, it’s also not as simple as transferring between your checking and savings accounts.

5. Pay yourself first and strategize accordingly.

Set long- and short-term savings strategies. And, reward yourself for saving money. The more you find ways to increase your savings, the more confident you’ll feel financially. Try a viral savings challenge, or save knowing that you’re also providing for opportunities down the road (not just emergencies). Shifting your mindset goes a long way in your financial confidence.

Where to Save?

Savings accounts at a bank or credit union are a good place to start. As your liquidity grows, we don’t recommend keeping 6 or 12 months of living expenses in a bank because of low-interest rates and also privacy issues, taxation, and other issues. 

Find out why the wealthy often utilize high cash value whole life insurance, and how it can help you

  • increase long-term savings and financial stability
  • shield your privacy (the IRS won’t know what you have stashed away)
  • protect your family permanently (why get only term insurance that becomes cost-prohibitive when you need it most?)
  • beat bank rates (cash value rates of return are around 2.75 to 3% by year 10 and 4.5 to 5% by year 20, depending on your age and health), and
  • build liquidity that can be used or borrowed against for any reason.

Despite those who argue that the rate of return is nominal, whole life insurance offers more bang for your buck. 

Take a 45-year-old man who wants to retire at age 65, and let’s say he puts $35,000 annually into his policy. While his cash value rate of return (ROR) is -22.56% in Year 1 at age 46, by age 65, the total rate of return increases to 4.68%. He’ll also end up with more cash over the years. The death benefit on that same policy increases from $1,053,632 in Year 1 to $2,868,081. What’s more, the cash value can be used anytime as a loan or for an emergency.

For more information, contact Prosperity Thinkers to get an illustration on how a whole life policy might perform for you, and whether or not it would make sense in your situation.

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