According to recent polls, 40% of workers are not saving for retirement and 25% percent of workers say they have no savings at all (source).
That means 1 out of every 4 people in America do not have savings. Solomon has a proverb for this. He tells the sluggard (or "lazy fool" in a paraphrase) to "go to the ant" and watch how "she prepares her bread in summer and gathers her food in harvest" (see Proverbs 6). The wise store up for hard times.
We must plan for the future. Instead of buying gadgets and getting into debt, we should be putting money aside so we do not become a burden on family and society. In fact, if everyone saved responsibly there would be little need for social security. (Perhaps one day I’ll write up my idea for how to eliminate social security and replace it with a stable, decentralized system.)
If you are not saving for emergencies and retirement, it’s simple to remedy. Here are some action steps:
- Open an IRA with your employer.
- Put as much as you can into it with each paycheck. Most employers will match up to a percentage of your income (usually anywhere from 3% to 5%). Did you catch that? You double your money the first day!
- Whatever you put into an IRA can be deducted from your income taxes and you don’t pay taxes on gains and dividends. It sounds too good to be true, doesn’t it? So why aren’t you doing it?
- If you are self-employed or work for an employer that does not offer IRAs, you can open your own and get the tax benefits.
- Open a high-yield savings account. I use ING Direct.
- This is your reserve account and should build up each month. The money is there for when something goes wrong — like your water heater explodes or Rover needs heart surgery.
- Setup an automatic monthly transfer from your checking account to your savings account. If you’re working full time, this should be at least $100.
- Don’t use your savings account for anything other than (1) emergency purchases or, occasionally, (2) making more money. But if you use it to make more money, always replace what you took out as soon as possible.
- The goal is to have — on top of your emergency reserve — six months to a year of living expenses covered in your savings. If you lose your job then there should be enough to live comfortably while you find a new job. (Or to finance that small business you’ve always wanted to start.)
That’s it. Now watch it grow, save on taxes and feel a little more like a wise man than a "lazy fool."