While some nations in the developing world struggle with food scarcity, lack of potable water, and the horrors of perpetual warfare and terrorism, a crisis of another sort loom over several of the world’s most affluent countries. It isn’t particularly dramatic so it doesn’t usually make the top news stories, but it affects millions of people nonetheless. We’re talking about a personal-savings crisis: people who seem to be getting by all right on a day-to-day basis simply are not saving enough for retirement, or even for emergencies or the proverbial “rainy day.”
Are you one of these folks? If so, you need to do something about it – and sooner rather than later because, as the saying goes, “It’s later than you think.”
What the world needs now is…an increase in savings
According to a survey by Bankrate released in March 2016, roughly half of U.S. residents are saving less than 5 percent of their incomes, with 18 percent reporting that they aren’t saving anything, and only about 25 percent saving more than 10 percent of their earnings. A Nanos/CTV survey published in July 2016 indicated that four out of 10 Canadians are not saving enough for retirement. Similarly, lackluster results are seen in studies from the UK and Europe (particularly Germany), as well as Australia and Japan.
The reasons people aren’t saving vary by individual and by country. Consider the United States, for example. Americans weren’t always such paltry savers, and there are numerous theories about the causes of the savings decline. Certain uniquely American cultural phenomena such as conspicuous consumption have played a part, along with U.S. economic policies that make it all too easy not to save money. But other dynamics such as mortgage debt and other debts are certainly to blame as well. In the financial meltdown that began in 2007-2008 and was fueled by the housing bubble burst, many people lost their homes, their retirement pots or their jobs, and many are still trying to recover. Those factors have affected numerous other nations too, of course, so clearly it’s not just an American problem.
It’s safe to say that millions of people across the world don’t save simply because they cannot afford to do so. Yet there are many people who could save at least a little, and aren’t doing so. In the long term, policy changes to increase social safety nets and to make it easier – or even mandatory – to save, particularly for retirement, could be helpful. But that’s up to governments. Individuals can take matters into their own hands too, and at the very least can accumulate a reasonable emergency fund. For some people, and perhaps you’re one of them, the problem is not so much a total lack of money as a lack of motivation. There’s a fix for that.
If motivation is your problem, here’s what you can do:
While many of us have a vague idea that we need to save more, our lives are so busy and filled with distractions that we remain, for the most part, hyper-focused on the present. We don’t make it a priority to set funds aside for emergencies that might never happen. A type of inertia sets in, and it can be very hard to overcome. Sound familiar? Not to worry: with a little creativity, you can conquer your inertia.
The first step is to set a savings goal. It doesn’t have to be enormous. Most experts recommend that you aim to accumulate six months’ living expenses – not six months’ salary, just enough to cover your necessary household expenses. If that still seems daunting, break the goal down into smaller and more achievable interim goals, such as $500.
Rewards are important too because they help keep you motivated. Every time you hit one of these interim goals, reward yourself with a small indulgence – eating out at a nice restaurant or going on a family outing. Just don’t make the “reward” so costly that you set yourself back.
Technology can help you too; making contributions to your emergency fund automatically will make savings much easier. Direct deposit can be your best friend.
And when all else fails, scare yourself a little. Sit down and seriously think about what you would do if you suddenly lost your job or were faced with some other crisis that significantly cut into your income. It isn’t that we’re suggesting you become obsessed with fear – that’s usually counterproductive – but sometimes a little dose of negative enforcement can give you just the boost you need.
It may seem that we’re stating the obvious, but one of the most important things you can do to increase your savings pot is to stop overspending. If you continually live beyond your means you’ll more than likely wind up with problem debt, and any money left over after meeting your everyday living expenses will go to paying down that debt, leaving you nothing to put into your savings fund.
Some debt may be unavoidable, but you can keep it to a minimum. There are times you may have an emergency where you need cash immediately and simply don’t have it in your savings, or for some reason, you don’t want to dip into your emergency fund.
In that case, taking out a student loan or any type of personal loan may be your best choice. But you don’t want to overspend for that either. To begin with, only borrow the amount of money you actually need to cover the emergency.
Don’t ever think of a loan as a bonus or a windfall; remember, you have to pay it back, with interest. Accordingly, you should be certain that you do have a way to pay it back on a timely basis, so as to avoid late charges or, worse, a default.
And while we’re on the topic of wise spending, it’s important that you shop carefully for a lender that offers the best rates and terms available. If you have a poor credit rating your choices will be limited and you will have to pay higher interest rates, but regardless of your credit rating, it’s important to know that not all lenders are created equal. Find a reliable third-party resource where you can do a side-by-side comparison of lenders’ rates and terms, and can even read customer reviews. (It even has several financial calculator tools, including a savings calculator.) Keep in mind that overspending on a loan can be as destructive to your savings goals as overspending on anything else. You have choices, so make smart ones.
The uncomfortable truth is that millions of people may be just a few paychecks away from financial catastrophe. But you don’t have to spend your life passively sitting by and fearing the worst. Take stock of your situation and then do whatever it takes to start saving now.