A long time ago, far, far, away…. I began this blog by The Richest Man in Babylon.” This book contains many simple, yet valuable nuggets of financial wisdom, such as the need to squirrel away at least 10% of one’s net worth. At this stage in my life, I actually feel this is far too little. My personal goal is to save closer to 40-50% of my income after taxes.
Are humans even wired to save? Why do so many of us have trouble with savings in the face of immediate gratification? Are we simply irrational?
I think that people are for the most part rational when it comes to achieving their goals, but we don’t necessarily have the right systems in place. Savings comes naturally to us in a sense, as we realize we need to have at least somewhat of a buffer for lean days ahead. We did not, however, evolve in a time when we could expect to live long lifespans, or in a world where significant capital accumulation was possible. Even if one “saved” by drying meat, building a few tools, and storing some nuts and seeds, there was a practical limit to how much one could save in times past. This has carried forward to today, where we can easily see the need to save for short-term goals, but have difficulty thinking beyond that to the more abstract long-term.
I admit that this is something I have had personal trouble with. The short-term goals of needing transportation, going out, etc… always outweighed any longer-term considerations. As time has passed and I have grown a bit older, I have realized that those of us living today are likely to be living much longer lives than those of generations past. If we want to maximize our lives, and ultimately our happiness over our entire lives, then we need to start thinking about what we can do to plan for those years ahead so that we can enjoy them when we get there!
Embracing a philosophy of savings doesn’t mean we need to be miserly. We can be frugal and have fun at the same time.
Here are the three main reasons why I squirrel away my money:
- For the future. Savings are ultimately a form of deferred consumption. I know that by sacrificing a little bit now, I can ultimately enjoy life that much more down the road. My savings become an investment that someone else can use to grow their business, and ultimately this makes us all better off.
- For the present. By saving more, I also learn to live on less income in the present. This is actually a form of security. Should there be shocks to our income, there is a lot of slack to adjust, but at the same time, while times are good, I am building up a buffer that will help lead to financial independence down the road.
- For the unknown. Without savings, I am at the mercy of my employer and of the economy. I would be stressed out all of the time and not know where my next meal would come from. This sort of uncertainty isn’t very pleasant.
I am only starting out on my journey toward financial independence, but the further I go and the more I learn from my fellow bloggers and Yakeziers, the more I realize that the dream is actually possible and I only need to reach out as far as I can to get there. Those with the highest net worth can sometimes be the biggest squirrelers around. If you are interested in reading more about squirreling away your net worth and living well, I recommend you visit my fellow blogger Squirrelers, where he shares wise advice as well as stories of squirreling gone wild.
So, reader, what are your primary motivations for squirreling away your money, or eating the nuts that you have saved if you have reached that point in your life? We all have our own personal dreams and goals; what are yours?