H&R BLOCK: DOLLLARS AND SENSE

Saving for a rainy day

Everyone believes it’s important to save for a rainy day, right? We all know we should save for the future, but we don’t always do it. In my research, I have studied the financial beliefs and behaviors of people from all walks of life, income levels and net-worth levels. My study revealed some striking differences between people’s money beliefs, but one statement explained 75 percent of the difference between those who are wealthy and those who are not: “It is important to save for a rainy day.”

It is not that the less wealthy didn’t believe saving was important; they just were less likely to “strongly agree” that it is important. This is a critical difference. Wealthier people believe more passionately about the importance of saving and are more likely to do so aggressively. Eventually, they acquire more wealth. Even with the most modest of incomes, thanks to compound interest, a habitual saver can amass great wealth in his or her lifetime.

Financial prosperity is not about how much money we make; it is about how much money we save. In my study, those who were less likely to “strongly agree” that it’s important to save for a rainy day were much more likely to overspend, carry credit card debt and have gambling problems. They were also more likely to be in their late teens and early twenties; precisely the time where savings can lead to wealth in the most dramatic way.

I know what you’re thinking. Saving money sounds good, but times are tough. How do you save for a rainy day when it is already raining? Frankly, it is never easy to start a new habit, but establishing a savings habit is perhaps the most important thing you can do for your financial fitness. And, modeling this behavior for your children is one of the most important things you can do for their future financial fitness. Start small, even if it is just pennies a day. Commit to paying yourself first from every bit of money that comes into your possession. Increase the percentage as you can, with the goal of saving 10-20 percent of your income for your financial freedom fund. Whether it is tomorrow or months from now, the sun will break through the clouds and the rain will stop. With your habit of saving firmly in place, you will be ready to make the most of it.