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Why Save When Rates Are So Low?


With interest rates so low, does it still make sense to keep a pile of cash on hand for emergencies?

Short answer: yes!

You may have a line of credit at your bank or a credit card with high spending limits. Btu not a single one of your credit cards comes with a lifetime guarantee. You could get a letter in the mail any day informing you that your bank no longer wishes to extend you credit (under any circumstances) and your credit cards can be canceled with little notice.

Cash … can’t be canceled.

Here are a few reasons why you need to save money:

1. Emergencies. You could get fired. Or your house could catch on fire. Or you could feel a fire in your chest and find out you’ve had a heart attack. Or your car’s pistons could stop firing. Isn’t it odd how the unexpected happens with such great regularity?

2. Opportunities. Your dream job opportunity might become available. But you need to cash to make the transition. The train won’t wait long for you at the station…you’ve got to make a quick decision. Will you be able to take advantage of the opportunity?

Or an investment opportunity might come around. A tract of land, an ownership interest in a start-up you believe in, a piece of equipment someone has to unload quick (because they don’t have any cash) that they will sell to you at a deep discount (because you do have cash), which you can turn around and sell for a handsome profit.

Louis Pasteur said, “Luck favors the prepared mind.” Preparation (in this case, saving) has a way of attracting opportunities.

3. Inevitabilities. My car drives fine today. But one day it won’t. I’ve got a list of repairs I need to have done to my house. After I get them all done, another list will have replaced it. My health seems to be good today. But one day it won’t be.

There are things that are going to happen with 100% certainty. I just don’t know when. Accumulated savings allows me to be prepared for the inevitable…whenever it comes.

A Simple Savings Strategy. So…what if you have $0 in the bank but are now convinced that you need to save money? What do you do?

First, save first. Don’t spend money on everything else and then try to save. Pay yourself first by saving, then spend only what it left over.

Second, work up to 15%. If you can’t save 15% of your gross income today, do what you can and let raises add to that amount each year until you get to the place where you are saving 15%.

Finally, keep saving until you accumulate 50% of your annual income. It belongs in a safe bank account (or other savings institution). Its job is not to earn money, but to be available. So don’t tie it up. Once you work up to saving 15% of income, it will take you about three years to save 50% of your gross annual income.

Saving isn’t sexy or exciting. It doesn’t come with five star ratings or matching funds from your employer. But it is the foundation of your financial forward progress.

Start saving today.

Byron is a Certified Financial Planner and Managing Director of the Planning Group at Argent Advisors, Inc.
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