Putting saving first

It sounds so scary when experts tell us how much we need to save for retirement. For every $10,000 we want to spend, they tell us we need to save $250,000 (for a 4% withdrawal rate, which maximizes the likelihood it will last throughout old age). That just sounds impossible for a family making $40k a year - heck, it sounds impossible for a family making $100k a year in high-cost-of-living areas where people are likely to earn that much. But small steps lead to medium steps which lead to great results.

$25 a month is a start. Heck, if $10 is all a person can save, the $120 they've saved after just a year is a small fortune. Then, when they don't have to pay late fees and use check-cashing services to do basic banking, they can save even more. Then, when they have a couple thousand dollars, when some swindler tells them they can buy that $1500 sofa for "just $25 a month" (forever), the little voice in the back of the brain says "gosh, that's almost every dollar I've got. It took me years to save $1,500. Maybe I better buy a $100 sofa off craigslist until I can afford to pay cash for a new sofa." That is a life-altering moment that leads to financial freedom.

Cash savings means not having to sell the car for gas money. It means not refinancing the house every 2 years for living money. It means paying off the house in 30 years, and having an affordable place to live in retirement. It means having money to buy a house when everyone is selling, and being able to take that terrific job in another state, even though the employer won't pay moving expenses. It means keeping food on the table during illness or layoffs. It means being able to afford insurance so that all the little problems life throws at you - and life will throw them - don't bankrupt you.

Two years ago, on Christmas eve, our water heater died. We had just inherited a child, with private school expenses and transportation expenses and food expenses and clothing expenses that we hadn't prepared for. But we had savings, and we had a determination to get our budget under control. So we cut some expenses that we didn't need, and we dipped into savings a for a few months while we adjusted, and when that water heater died on Christmas Eve, we were blessed. We didn't have to go to the stores to return all the presents, and we didn't have to wait until the plumber that accepted credit cards opened after Christmas. We called the 24-hour plumber, wrote a check, and went to celebrate the holidays. Let me tell you, we've both been in situations where it would have been different. But we've made saving a priority - so we made continuing to save a priority - and we're not rich, but it sure feels wealthy knowing we can give Christmas presents without going into debt, even after spending 800 unexpected dollars on Christmas Eve.

Saving starts with whatever small steps we can do. Nobody needs a latte or a dinner out or a new TV. Experts sometimes make us feel like we may as well give up if we can't put away a thousand dollars a month. That's just not true. A dollar a month - if it's really all we can afford to save - gives us the small fortune of $12 after a year. $5 a month is $60 in year. $100 a month is $1200 in a year. Don't even think of it as a year, if that sounds too hard. It's just saving once a month, twelve times. Lather, rinse, repeat.

Saving is a gift to ourselves, a promise that someday, we won't go into financial crisis every time we need an oil change or a brake job or a $100 continuing education class. Eventually, after a few years, it's the gift of peace. It's getting out of debt, staying out debt, and having options. Then, as the decades pass, it's the gift of understanding money, understanding how hard it is to earn, how hard it is to keep, how much easier it is - in the long run - when we just say no rather than say "charge it!" At retirement or during an ugly layoff, it is the gift of staying fed, clothed, and housed.

A lot of experts say to pay off the credit cards before putting money into savings. For me, I needed to save first, to have the security of not needing the credit card when unexpected expenses popped up. I needed to have the sense that I could do it, that it was worth it, and what it really took. I started saving young, but things kept happening, and I eventually gave up. Just plain gave up. But when I started again, I realized that my sense of money was skewed. My idea of what was "a lot" of money had been framed by credit limits and how much I could buy for "just $25 a month" and news reports of billions, and, honestly, by the false belief that I earned my full salary every year. After taxes and deductions, after housing and food, I had less than half my salary left over, but I still thought - when spending - in terms of "I earn $X a year." After I struggled long and hard to save $1,500, I truly understood that $1,500 was a lot of money.

There's a sneaky side benefit to saving, too. If you pay 15% of your income in taxes, and you save 10%, you're only living on 75% of your income. So if you lose your job, you only need to make up 75% of your income to maintain your standard of living. If you couldn't afford to save and eat out every week, you already gave up eating out once a week - you don't have to cut back so much during lean times. It's tough to cut back after a layoff - you already feel low about losing your job, and then having to cut back makes you feel poor, on top of it. But if you cut back to what you could afford before crisis hit, so you could save, you have a cash cushion and you don't need as much. That's double the bang for the buck.

Nobody talks about the benefits of saving. They just say you should do it, save for a rainy day. I say, save for a sunny day, because savings makes those rainy days a lot less dreary. If it never rains, well, saving is still mighty good. At first, it's just less drama, but then it's dramatic benefits, being able to buy a house, being able to go on a trip without borrowing, being able to pursue a dream or retire early or put your kid through school. It's a freedom and lightness that everyone should experience for as much of their life as possible. Put saving first, before the lattes, before dinners out, before the luxuries, because financial security is the best luxury money can buy.