By Steve Pomeranz
This is a message for our younger listeners and the parents and grandparents who help them about why it is so important to save. It sounds like a silly topic because everyone has heard of the value of saving, but has anyone actually told you why? I’m going to try to give you a fresh angle.
Our daily lives are made up of so much diversity; home, work, relationships, finances, feelings, fears, elations and just the art of living and enjoying life.
Where does saving and investing come into all of this and why is it so important? What does wealth mean? Is it a scorecard of accomplishment? Does it help you feel self worthy? Does it give you power or attention or access to luxuriousness? Maybe you want just enough so you don’t have to think about it.
Whatever money is to you, it’s going to be an issue in your life whether you like it or not. That is why you need to learn about it. That is why you need to weave it into your life in a way that fits your life.
Avoiding it only brings trouble or misery (like buying a house you really can’t afford because someone makes it available to you), leaving the details and reality to the future as if, in some magical way, the future will take care of itself.
I know people who live incredibly rich social and spiritual lives except when it comes to money. They ignore it and avoid thinking about it all costs. This leads to a chronic economic struggle from which they cannot escape. How they managed to re-direct their lives so well in so many ways without en-RICHING their lives monetarily is a real mystery.
I think in some ways it’s simply a lack of education. When I was brought up, money was never discussed. You worked, earned and spent money like it was the food you grew on a farm. You produced it and then consumed it only to have to produce it again every single day.
The only discussions I remember about investments were that stocks were “bad” and that any UK crypto exchange is unreliable. People losing everything, jumping out of windows. All Depression-era talk from my parents whose own parents never had a dime to their name. As immigrants it was always about survival. Nothing more.
When I began working in the investment business in 1980, I didn’t understand anything. I Never heard about it in school, home or anywhere else. How could I know what it all meant?
Luckily, I had a knack for the business and was a fast learner. 28 years later, it’s second nature to me.
But this is the 21st century and it’s the money century. The world has changed more drastically than you can imagine. You can’t afford to sit around idly as this rushing river of money passes by leaving all those outside its wake in poverty. I’m not talking about poverty caused by bad investments. I’m talking about the poverty caused by No investments, No savings, No monetary foundation on which to build your life. It just can’t be ignored anymore, you can’t wait 10 years to learn what to do and how to get control of it.
Where do you start? You start with the big picture, the world from the height of the space station. Close enough to see the globe but far, far above the noise.
What’s your work like from 30,000 feet? What is the industry and how does it fit into 21st century dynamics? Is it what you want to do?
Assuming you work, what is important to you? Spending on family, travel, beautiful cars, luscious food, great friends, helping others? Whatever it is, you earn, you consume, you have to earn again; a daily grinding cycle. Then you make more and spend more and the cycle never changes–you are always in the grind.
It is said that “a man who earns $1.00 but spends $1.01 is in misery. A man who earns $1.00 and spends .99 is in bliss”. Have you ever been in monetary bliss? If you have, you know what I mean, if not, listen. Save some money. At first, save one month’s spending. You will find a bit of the burden lifted from your shoulders.
The burden of wondering what would happen if no income came in for one month. The burden of having a few bucks extra in case there is a surprise bill or you have to take your dog to the vet. Once you have a few months under your belt, start tackling your debt. This may be the hardest part, because the interest on credit cards and the like are pretty high, so less of your money goes to principal at first.
But then a magical thing happens. As the debt comes down and as you are still making the same equal monthly payments you start to experience a snowball effect. More and more of your payment goes to principal and your debt declines faster and faster. Then one card is done and you start on the next and the next. After a few years—yes years, the debt is gone and that same monthly payment can now be applied to savings, and guess what, you have more cash flow because you no longer have to pay your monthly credit card bills. What a feeling! I know this personally because it happened to me. Remember I said I started in this business in 1980. I started doing pretty well by 1985 and my income continued to grow year after year. Of course the first thing I did is —can you guess? –I traded up my Chrysler to a BMW. What an idiot! My monthly car payments went to $535 a month, plus that darned car never worked right and I had maintenance expenses that cost me dearly. I had to use credit cards to pay them and really just to get along. On October 1, of 1987, I bought and closed on a bigger house and on October 17th, 1987, the market crashed, so I found myself in a heap of trouble.
Lower income and higher expenses was a financial tsunami for me. I had no choice but to use credit cards to survive. Many of my fellow brokers were in the same condition and some of them declared bankruptcy, which is something I never felt right about doing (later in 1996 I was very glad I didn’t, because when I started my own company, Pomeranz Financial Mgt., I would not have been able to start this firm had I declared bankruptcy). Little did I know that if I had taken the easier path 9 years earlier by declaring bankruptcy, I wouldn’t have been able to follow my dream.
After a few years my financial condition stabilized but I had a lot of debt. So one- by-one I started paying them off and it took a long, long, time. Interest rates were much higher then, so it was quite a slog. This is when I discovered the snowball effect. After a number of years I finally dug myself out and started to save as I am describing here. By the way, when I say I, I mean we. My wife, Sue, was with me through all of this. We did it together.
Once your debts are paid off by the snowball effect, the savings effect has its own magic, because Mr. Snowball comes to party once again. This time you find that before you know it, you have saved 5k, 10k, 20k, and more. Why? Because as your debts decline, you get more and more cash flow, and if you stay focused on your goal, your savings will build very quickly.
So now you have saved some money, what do you do to become part of the Money Century?
You no longer live paycheck to paycheck (what a relief!) and have money in excess of 3 to 6 month spending. The next step is to understand the power of starting early.
Here is an amazing fact: If you save $166 per month starting at age 25 and stopping at age 35, earn a 9 percent return your $20,000 invested will be worth $473,000 at age 65.
If you waited to save until age 35 and saved $166 per month until age 65, your $90,000 would be worth $320,000, It’s an amazing difference and illustrative of the cost of waiting. To see this example in more detail, go to our web site, Onthemoneyradio.org and sign up as an insider. There’s no cost to you and you will also get my weekly blog if you so desire.
By this simple savings exercise you are now part of the Money Century. You can accumulate wealth whether it be for future income, a life of power, or enough to not have to worry about it. You now have to learn how to invest your money properly and enjoy the fruits and challenges of this new adventure. I can tell you from personal experience, it’s a lot better to be on top of it, than have it crush you.