This month\’s theme is on savings. Savings is essential in building a strategic plan for your finances and building margin into them. My goal is to inspire you to put away a little bit more money into savings in times such as these.
We\’ll be going through some statistics and some goals around savings and talk about why it\’s important to save and how you can go about doing so. In this day and age, it\’s easy to spend.
It\’s so easy to spend through so many different avenues and platforms, but it is a lot more difficult to save.
I say that because there\’s a barrier keeping us from saving because of all the different things which we could potentially put our incomes towards. In this world, due to the impact of instant gratification and immediately being able to enjoy products or services that we can get our hands on, it can be challenging to go against the grain and put away money for saving, rainy day fund, or for retirement.
That\’s why it\’s essential to have this conversation on saving money for the future. Nowadays, it\’s so easy to get a loan for just about anything.
For anything under the sun that you can think of, there is most likely a loan for that.
That\’s why I started out the year with the theme of credit cards and unsecured loans and fulfilling lifestyle creep through our overconsumption. However, I understand the challenges that come with that money burning a hole in your pocket. It\’s so important, especially in uncertain times, to have a plan for your money–– to have a plan for your savings so that you\’re not burning that hole in your pocket by spending that money that should be attributed or allocated to some savings.
There are a myriad of reasons for you to save.
It may be for a lifestyle you want to live in the future. It may be for retirement savings to retire at a certain season or age, or so on and so forth. It may also be just to build margin for options, and with that, it\’s important for you to have a \”why\”. For example, knowing why you want to save money will help you prevail in the time when it\’s so easy to spend that savings on something that comes up and catches your eye.
We tend to have very little margin between what we bring in and what is spent for various purchases. And with that, often, it causes people not to save very much because everything that comes in is going right back out the door. Even though there is a tendency to want to spend everything that\’s coming in, it\’s important for you to set aside a certain percentage that you are going to commit to saving for the future, for whatever your \”why\” might be.
The most recent report by the Federal Reserve of St. Louis outlined that our savings rate had an average of 13.7% in December. Now, that\’s the most recent report, but that is basically 20% off of the peak we saw in April of 2020 when the peak was at 33.7%.
With that, it\’s essential to ask yourself, \”Okay, why is our savings rate declining?\”
This decline could be attributed to several different factors. This personal savings rate is a percentage of your disposable income, so this amount doesn\’t necessarily mean that people are actually putting that amount directly into a savings account. It could go into the markets, into a savings account, or even into purchasing a primary residence, meaning that savings rate could be just directly reinvested. That doesn\’t mean that people are sitting on those cash reserves.
That prior spike in April of 2020 leads to the heightened levels of savings that we see in the most recent report released. It begs the question of, \”Okay, well, if we are saving so much more than we typically have historically, what is that attributed to? Is it the rent moratoriums? Is it the deferrals with the student loans? Is it the mortgage forbearance, or maybe the stimulus? What could this be attributed to?\”
I think for many Americans it\’s attributed to multiple aspects.
It may be spending less in the stores, or it may be the fact that we\’re cooking at home more or commuting less, or maybe even traveling less. It could be attributed to so many different factors, but nonetheless, it\’s important to ask, \”Okay, if this savings rate is higher and people are spending less, why are they spending less, especially when this is the average individual spending?\”
The National Bureau of Economic Research came out and stated that in mid-2020, we officially entered into a recession. With that, it was a response to the fact that GDP was plummeting, unemployment was skyrocketing, and general activity in the economy was slowing.
They responded quicker than they normally do. Usually, it takes about nine months for the research firms to state that the United States is officially in a recession.
Oftentimes, that word or even the sense that a recession is coming will cause people to respond very emotionally, so they\’ll hunker down, save more, and won\’t spend. And when they don\’t spend, it ends up causing a ripple effect in the economy because that spending is someone else\’s income.
In the economy, we can see these various sectors that have fared and have done really well during the last year in everything that has transpired. But we\’ve also seen those sectors that have been hit heavily.
With that, you can see some aspects where spending has dried up, and therefore, as people are not spending more, they\’re saving in that area but may be spending more in other areas. That\’s why it\’s so hard to pinpoint when we officially go into a recession accurately.
Some of these sectors that we have seen pent-up demand during this time have been aspects like housing. Housing starts when it comes to remodels and home improvement, as well as furnishings and appliances, in addition to vehicles, surprisingly enough. Meanwhile, others, maybe like the restaurant industry and in any indoor gaming places like casinos and places like that––that have to shutter their doors or at least close down for an extended period of time––struggle to recover.
