The Seven Pillars of Financial Success, Pillar 4: Saving for the Future

For those of you new to Free Money Finance, I post on The Bible and Money every Sunday. Here's why.

The Bible discusses the keys to personal finance success quite plainly. If you read the book of Proverbs in particular, you'll see that the path to financial success isn't that difficult or extensive. In fact, the wisdom to be prosperous can be found in a few simple steps.

Over the next few weeks, I'll be sharing what I consider to be the seven pillars of financial success from the Bible.  I picked up on the number seven from Proverbs 9:1 where it says:

Wisdom has built her house; she has hewn out its seven pillars.

Today we'll be discussing Pillar #4: Saving for the Future.

In Proverbs 6:6-8, the Bible says:

Go to the ant, you sluggard; consider its ways and be wise! It has no commander, no overseer or ruler, yet it stores its provisions in summer and gathers its food at harvest.

The ant saves in a time of plenty (summertime and harvest) for a time when there will be lack or need (like the winter.) If we're wise, we'll do the same thing -- we'll save now for future expenses that we can be pretty sure will occur. Some to consider saving for:

• Emergency fund
• Retirement
• A home
• Cars (yes, you can pay cash for them)
• College costs for kids
• Upcoming vacations

This, of course, is just a starter list (though it does cover the most expensive things most people save for). Really you want to save for every future purchase you make -- so you don't have to borrow for any of them.

I'm a big believer in saving a portion of every paycheck you receive (I save/invest directly into my 401k as well as have some of each paycheck sent to a personal Vanguard account.) A good rule-of-thumb is to start out by saving at least 10% of your income, and from there the amount should increase over time (I'm currently saving about 1/3 of my income).

Do you agree or disagree?

Come back next week as I discuss Pillar #5!

Comments

[BillV]

How does anyone disagree? ;-)

A question for you FMF? Is your savings %'s based on gross income or net (after Fed, state, fica etc)? Either way is great, just asking.

Two obvious points to regular readers/posters here.
1. A non-painful way to get to 1/3 is to put half(more or less) of every pay increase into some automatic withdrawal program.

2. An unintended and perhaps overlooked consequence of saving/investing such a large % occurs when it comes time to 'retire'. As the saver has been living well below their means, the shift from savings and earning money to drawing down from the savings is not as dramatic.

That may not clear as I mean it to be. Let me try it again. One rule of thumb is that a person retiring needs 75 to 80% of their income to live well. (Not saying whether it's true or not). If you have spent your career living on 67% of your income and saving/investing the other 1/3, then living on 80% give you a 'pay increase' .

Hope my logic here isn't too fuzzy.

[DIY Investor]

Good point by BillV. I have never thought of that but it is exactly right.

[FMF]

BillV --

1. I'm dealing with gross income (click the link in the post above and it will give details.)

2. Your point is why I always recommend that people save for retirement based on what their actual needs are -- not simply a percentage of income.

[Joel Gray]

I think I should consider looking for more ways to save for future funds. This post has been helpful. Thank you!

[BillV]

FMF--
I went back and did click on the link, thanks.
BTW, I scrolled down that discussion and saw that I had commented there. As I said then and say again "Kudos to you, for the amount you give."

DIY-- It worked for me. I am fortunate to have a defined benefit pension. (I may be among the last). But I also contributed to an IRA and a deferred compensation program--not employer matched. When I retired my actual take home is higher than my take home pay while I was working. Not by a ton, but still higher.
And I have not yet had to make withdrawals from my investments.
I'm not the most financial astute person (I'm an index fund/fixed account buy and hold sort of guy). Why do I say this? Because I want younger folks who read here to know that what FMF regular says here works.

Manage your career smartly.
Maximise the difference between income and expenses.
Take advantage of compound interest.
Avoid needless debt.

And you can "get rich slowly"

[Squirrelers]

I absolutely agree. Make sure you work hard to structure your life in a way that you can maintain a healthy income minus expense gap. The more the better, and keep a realistic perspective on what your future needs might be. Save early and often, and let math be your friend as your nest egg compounds.

[Old Limey]

The four pillars that have supported my happy and fulfilling life have been:

1) Growing up I had great role models throughout my whole extended family, grandparents, parents, aunts & uncles.

2) I worked hard and diligently to get a good education in a field that I really liked and that paid well.

3) I started my chosen career early, worked really hard at it, and stuck with it.

4) We got our marriage right the first time by ensuring that not only were we both deeply in love but that we were totally compatible, and particularly that we were both savers.

I am 76, my wife is older by 18 months, and those four pillars have provided a very happy and stable life together for 54 years, produced three successful children, seven grandchildren, and a wonderful retirement for the last eighteen years without any money worries. Unfortunately one daughter has had two divorces, the other daughter just one. Once children become adults they make all their own decisions, in today's world parental advice can only go so far.

[Harm]

The ant has no 'commander' or ruler? What about the Queen?
LoL.

[Ken]

Consistently saving SOMETHING is critical to financial success. Start with 1-2% of check and make it automatic...direct deposited into savings account. This is a critical habit to develop early in life.