Save money today and have a better life tomorrow. Didn't someone tell you this already? Here is a reminder PLUS some reasons you may have missed.
1. Fund your Future First
The secret to Financial Independence is to Fund your Future First. No matter how much or how little you earn, you should always save at least 10% of your income as “permanent” savings. Most people pay their bills first and save what’s left. Saving first will put you a step ahead of most people.
2. Percentage savings is the simplest and easiest
Save a percentage instead of a dollar amount. Percentage savings is the simplest and easiest way to build a budget. If you are saving 10% of your income, by definition, you are living within your means.
3. Ability to defer gratification
Saving 10% of your income is evidence of your ability to defer gratification. According to psychologists, deferring gratification is an indicator of emotional intelligence and perhaps the most powerful predictor of young toddlers' success.
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4. The higher your income, the lower the replacement ratio of your Social Security benefits
Social Security was meant to be a safety net for the elderly poor, not a universal retirement plan. When Social Security started, 40 workers were contributing to every single beneficiary. Today the ratio of workers to beneficiaries is 3/1, and soon it will be 2/1. There is no doubt that social security benefits will have to be reduced even more for the program to remain solvent.
5. Create a cash flow cushion
Saving 10% of your income provides a cash flow cushion, which allows you to take more risk in your portfolio. During an emergency, you can reduce your savings rate instead of tapping your investments.
6. Create a cash flow cushion
Saving 10% of your income provides a cash flow cushion, which allows you to take more risk in your portfolio. During an emergency, you can reduce your savings rate instead of tapping your investments.
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7. Early retirement
Nobel Laureate, Robert William Fogel, has calculated that if the average couple with one spouse working part-time saved 14.7% of their income from the day both spouses entered the workforce, the couple could retire at age 55 with a retirement income that placed them among the top 20% of all US households.
8. Inflation protection
Saving 10% of your income even after retirement provides some inflation protection during the withdrawal years. In practice, this means that your taxes and living expenses should be about 90% of your total income when you retire.
9. The key to retirement is spending.
Saving 10% of your income even during retirement reduces the impact of portfolio losses during the withdrawal years. The key to retirement is spending. By never spending more than 90% of your gross income, you continue to fund your future first and greatly reduce the odds that you will outlive your money.