Money and Wealth (Part 8) – Saving (Part C) – When, How, How Much

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Money and Wealth (Part 8) – Saving (Part C) – When, How, How Much

When to save

1. Early in life
   1. Parents should teach their children to start saving money (and tithing as well) from the youngest of ages as soon as they acquire money from gifts or from doing tasks around the home for which they are paid.
   2. Never loan your children money to buy anything.
   3. Make your children save money and pay for things they want which are beyond their basic needs (like food, clothing, shelter, and medical care).
   4. When a child gets his first job, I recommend requiring him to save 50% of his earnings and give 10% to the Lord.
   5. This will get him off to a good start in life, both in terms of wealth and money management skills.
   6. Parents, if you do not teach your children to manage money well and to be savers, both by your precept and example, your children will likely end up being broke for their entire lives.
   7. “UAWs [under accumulators of wealth] tend to produce children who eventually become UAWs themselves. What is expected of children who are exposed to a household environment predicated upon very high consumption, few―if any―economic constraints, little planning or budgeting, no discipline, and pandering to every product-related desire? Like their UAW parents, as adults, these children are often addicted to an undisciplined, high-consumption lifestyle. Further, these children typically will never earn the incomes necessary to support the lifestyle to which they have grown accustomed.” (Thomas J. Stanley, The Millionaire Next Door, p. 89)
   8. On the other hand, parents who are wise with money and are savers will tend to produce children who act likewise.
      • “PAWs [prodigious accumulators of wealth] tend to produce children who become PAWs.” (Thomas J. Stanley, The Millionaire Next Door, p. 90)
      • If you train up a child in way he should go, especially by your example, he will not depart from it when he grows up (Pro 22:6).
      • This includes training him to never borrow money (Pro 22:7).
      • It is likely not a coincidence that Pro 22:7 follows Pro 22:6.
2. Throughout your entire life
   1. Saving money should begin in early childhood and last until death (or until one has no income to save).
   2. The amount of money one saves may vary during different periods of life.
   3. Most people save little when they are young and then when they get older and see the hand writing on the wall, they decide to start getting serious about saving.
   4. This is the opposite of what should happen. Saving early in life puts time and interest to work for you instead of against you.
3. As soon as you get paid
   1. Most people save whatever is left after they pay all their expenses for the month.
   2. This is foolish because it makes saving one’s lowest priority and usually results in very little being saved.
   3. The wise way to save is to move a set amount or percentage into a savings account as soon as one gets paid, and then live off the rest.
   4. This makes saving a high priority and results in more money being saved and less spent and wasted.

How to save

1. Save first before spending.
2. “Do not save what is left after spending, but spend what is left after saving.” (Warren Buffett)
3. Make it automatic.
   1. If you are on salary and your paycheck is the same every month, fortnight, or week, then this should be very easy. You can set up automatic transfers in your bank account to make this happen so you don’t even have to think about it.
   2. If your income varies from pay period to pay period, then you may have to do this manually.
4. When you get a raise, don’t change your spending, and save the increase.
5. When you get a bonus or unexpected money, save most of it and only spend a little of it.
   1. Foolish people do the opposite and spend any extra money they get.
   2. “Many Americans, especially those in the under accumulator of wealth (UAW) category, know how to deal with increases in their realized income. They spend them! Their need for immediate gratification is great.” (Thomas J. Stanley, The Millionaire Next Door, p. 29)
6. Live well below your means.
   1. This is the only way to build wealth.
   2. This is what all self-made wealthy people do.
   3. “Fully 90 percent of millionaires who live in homes valued at under $300,000 are extremely satisfied with life.” (Thomas J. Stanley, The Millionaire Next Door, p. xii) (from the preface written in 2010)
   4. “About one-half of the millionaires in America don’t live in upscale neighborhoods.” (Thomas J. Stanley, The Millionaire Next Door, p. xiii)
   5. “Interestingly, the millionaires I interviewed in Oklahoma and Texas, for example, had the same set of traditional American values as those whom I interviewed in New York City and Chicago. The large majority was keenly interested in being financially independent. That’s why they lived below their means.” (Thomas J. Stanley, The Millionaire Next Door, p. xiii)
   6. “But the millionaire-next-door types do it differently. As one millionaire woman trained as an engineer told me, ‘After college my husband (also an engineer) and I both got good jobs. We lived on one income and saved the other. Anytime we got raises we just saved more. We have lived in the same modest 1,900-square-foot home for twenty years…. Sometimes my kids ask if we are poor because I make them order from the $1 value menu.’” (Thomas J. Stanley, The Millionaire Next Door, p. xiv)
   7. “Affluent people typically follow a lifestyle conducive to accumulating money. In the course of our investigations, we discovered seven common denominators among those who successfully build wealth.
      1. They live well below their means.
      2. They allocate their time, energy, and money efficiently, in ways conducive to building wealth.
      3. They believe that financial independence is more important than displaying high social status.
      4. Their parents did not provide economic outpatient care.
      5. Their adult children are economically self-sufficient.
      6. They are proficient in targeting market opportunities.
      7. They chose the right occupation.” (Thomas J. Stanley, The Millionaire Next Door, pp. 3-4)

How much of one’s income to save

1. It depends on one’s income, family size, and many other factors.
2. A good rule of thumb is 15% of your gross income.
3. A single man with a good job could and should save much more than this.
4. A married man with an average salary who has six young children and a stay-at-home wife might not be able to save that much.

How much to have saved by the end of your working years

1. Every Christian should strive to save enough money to take care of both his and his wife’s needs for their entire lives.
2. Parents should not expect their children to take care of them financially in old age if they were foolish with their money during their lives.
   1. Parents ought to lay up for the children, not children for their parents (2Co 12:14).
   2. If one has done his best to live frugally and save throughout his life and still outlives his savings, then it is his children’s responsibility (Mar 7:10-12), or even his grandchildren’s or nephews’ and nieces’ responsibility to provide for his needs (1Ti 5:4).
3. Even though most people don’t live to 90 years old, a Christian better plan on it when preparing for retirement in the event that he does live that long.
   1. A Christian man also must plan to have enough money to provide for his wife for the remainder of her life after he dies, which could be years or even decades later.
   2. A man who does not make provision for his wife for the rest of her life after his death (when he could have) is worse than an infidel (1Ti 5:8).
4. How much is enough?
   1. First of all, do not rely on Social Security. The government’s own estimates show that the SS trust fund will run out of money in 2033, and that’s with optimistic assumptions about inflation, birthrates, unemployment, and economic growth.
   2. Assuming that Social Security will be gone, or at least greatly diminished by the time you retire, I recommend that one has at least $500,000 saved with no debt by age 70. This would allow a man and his wife to live for 20 years on $36,000 per year ($3,000 per month) assuming they could make 4% interest.
      • The above figures do not factor in inflation, so the number would need to be higher than $500k.
      • If you need more than $3,000 per month to live by the time you retire (and you likely will), then you will need to have more than $500k saved.
      • If you want to stop working (or are forced to by circumstances) before age 70, you will need to have more saved.
      • You can use a retirement calculator to figure out how much you need to have saved based on how much money per month you need to live and how long you plan to (or could) live. https://www.calculator.net/retirement-calculator.html
   3. This is not even factoring in expensive medical procedures, nursing homes, etc.
   4. $100,000 of savings can be gone in a very short time these days. Plan accordingly.