Embracing a Saving Mindset

Written By: Madeline Cheney

I recently saw this humorous, made-up exchange online:
Me: I really want to travel!
Bank Account: Like… to the backyard?

While funny, this illustrates the all-too-common phenomena of spending more than is earned, which is something the average American does every year. Rather than heeding the bank account's realistic concern, many people continue to spend anyway. Even after earning more money, people tend to continue spending as much as they make rather than saving the difference. There are several explanations for this, but some key reasons include:

1 Feeling like they need to “keep up with the Joneses."
2 Believing they are entitled to certain luxuries.
3 Wanting a self-esteem boost.

From an early age, my parents were an example to me of how to be financially wise. I remember being very little, probably around four years old, sitting in the shopping cart as my mom shopped for groceries. I constantly asked her if we could buy all of the things that caught my eye, but her response consistently was, "We can't afford it." Looking back, I can appreciate that she responded so honestly. From an early age, I began to understand what it meant to live within one’s means, and I got comfortable with the idea that not being able to afford something was perfectly okay – an invaluable lesson.

Saving every penny isn’t practical – nor would doing so likely lead to an enjoyable or fulfilling life. Saving a percentage of one's income, however, is wise and can provide peace of mind in financially turbulent times. Experts vary in their suggestions, but most suggest saving at least 10-20% of earned income each month. This can be challenging and seemingly impossible for some, but everyone can find an area to cut back on, even if the amount they save is small.

View saving as an opportunity rather than a sacrifice.

Ultimately, mindset is everything when it comes to saving. One can reframe how they think about saving money by viewing it as an opportunity rather than a sacrifice. By saving early on and taking advantage of compound interest, one can accumulate significant wealth even if they never become a top-earner. One can earn an average salary and retire very well if they are willing to save.

For example, experts recommend saving the equivalent of one's salary by the time they are 30. This example will use the national average salary of $50,000 for a 30-year-old and assume a 9% rate of return (the average rate of return between 1970 and 2016 was 10.3%). If this individual saved $50,000 in their 401k by the time they were 30 – and never contributed anything more – they would have $1,020,698 when they retire, not taking inflation into account. Yet, if they continued to regularly contribute money to a 401k during ages 30 and beyond, they could retire as a multi-millionaire.

Modifying one’s mindset about finances can be difficult, but the reward of financial freedom and wealth is well worth the challenge.