Starting A Savings Program

[cjcampbell]

People often say that they do not earn enough to begin saving, yet we are told that saving 10% of your income is essential for preparedness. How do you do that when you can't make ends meet now?

Well, first of all, develop a budget -- see my post on how to develop a very simple budget that even you can keep up with. Then start saving, no matter what your expenses are. There are several reasons for this which I will develop later. But trust me, you need to start saving from the very beginning.

You add up all the things in your budget and look at your income and say, "I can't trim my budget enough to save 10% of my income." Is that really true? What would happen if your income was cut by 10%? You would have to live on less, no? You would have no choice in the matter at all. You might have to find a cheaper place to live. You might have to eat less expensive food. You might have to dress at Deseret Industries. You might even have to move under the overpass. (Well, okay. If it is choice between saving and living under the overpass or starving to death -- not eating well or even what you like, but actually starving to death, you can be excused from saving. But still pay your tithing.) If you really, really cannot save 10% without doing something life-threatening, save 5%.

Now, where do you put your savings? I really don't care that much. At first, we are not talking about junk CDs and jumbo loans, are we? Put it in a credit union or a bank. Don't worry too much about the interest that you get at first. Look, if you are making $25,000 a year and you are saving $2,500 a year, the difference between 2.5% return on your investment and 10.5% return on your investment is $200, nearly a month's worth of savings. But you are not going to get 10.5% on $2,500 unless you are doing something inordinately risky or illegal. Once you have six months to a year of income in savings, see my discussion on "accumulating wealth and becoming a millionaire." Until then, don't worry about it.