Photo Credit: Images Money || Saving is a good thing, don’t let the Keynesians tell you otherwise. After all, Keynes saved and invested.
When I started Aleph Blog my oldest child (out of eight) was 17. At present, my youngest child is 17. My view on saving is that you should save as much as you can. Why?
Much consumer spending is not needed. It is done to compete with other people for bragging rights, rather than meet basic needs. Many people in the US and other places are spoiled, and think that they need to have the best in the goods that they consume.
Learn from your great-grandparents who you never met, or were too little to understand: Deferred gratification. Don’t maximize the joy of your youth. Rather, save when you are young, and look to have a happy life from middle age to the end of life. That would be more happiness than if you had not saved when you were young.
What I have seen from my own children is that the savers are he happy ones, and the spenders are miserable… chased by the debt collectors and the repo men. It is a poor kind of happiness for me that those who listened to me are doing well, and those who ignored me are doing bad.
My basic advice for you is this: save 10% or more of your income. If you think you can’t do it, you are right. But I will tell you that you can do it, regardless of what your think. It is a question of will, not ability.
True saving means cutting expenses that are pleasant but not necessary. It means searching over your credit card statement for things you agreed to once, but no longer need. It means living with the old clothes that are just fine, but a little out of date. It means eating common food at home, and learning how to cook delicious food yourself. In this era of the internet, with rated recipes, this is not hard.
The main thing to fight is the attitude that you need to spend now. Think and plan. What is the best way that you can organize your life for the next 30 years? When you think long-term everything becomes more rational.
Summary
Save and invest. Your life will be happier if you deny yourself when you are younger, and enjoy life more when you are older. I have been debt-free for over 15 years now. Not having to make a mortgage or rent payment is a sweet thing. Having a valuable asset like my home (free and clear) is a sweet thing.
On average, in my life I saved more than 10% of my income, and I gave away more than 10% of my income. I do not regret the deprivation. At present, I have more than I need, and I give to charities.
I am not telling you to be like me. I am telling you that there is an alternative to the typical consumer mindset. Like your great-grandparents, defer gratification and save. You will be happier in the long run.
Hello David. Fellow actuary here. I usually love your posts. I disagree with this one. Or at least I disagree with the title. ?How much (or how little) should I spend?? may have matched the content better.
I?d love to read your thoughts on ?When have I saved enough so that I may now outspend my income?? Perhaps you have written such a post but I don?t recall it.
Thanks for your great content!
My oft repeated advice has been “save early-save often.” However, its often hard to convince a young person of the value of compound growth. Not only do you have to have the ability and willingness to save, but you must also have the patience to save as the greatest growth in any retirement savings plan occurs in the last 5-10 years prior to retirement. Add to this the pesky details of how and in what to invest your savings and too many people end up throwing their hands in the air in frustration. One bright spot is the growth in “robo” investment tools that are attractively priced that can simplify both the savings and investment process.
As to how much is enough, the best I’ve ever been able to come up with is that it depends on the individual and when they plan to retire. Unfortunately, its also been my experience that too many people underestimate their savings need and/or are unable/unwilling to delay gratification for their future needs.
Thanks. This is well said. Young people think they are invincible, and don’t consider that they will be old one day. I feel considerably different at age 58 than when I left grad school at age 25.
The only problem today on this is low interest rates, and high P/Es. The rewards to savings are lower, but they are still there.