Wednesday, May 5, 2010
Save to Be Prepared - Don't Save To Be Rich
Tip #255 - Save to Be Prepared - Don't Save To Be Rich. Many people dream of being rich one day - having all of the money they want to take a trip around the world, buy expensive homes, and drive fancy cars. But most of us won't become that rich. And I don't think most of us even necessarily want to be that rich - some people, but not most. So why is it that we are saving money, if it's not to be rich? The reason we should be saving money is to be prepared - prepared for the day when we want to purchase a new home, prepared for the years that we want to stop working so we can take care of our children, prepared for the weeks that we want to take vacations, prepared for the four years that our children will be off at college, prepared for the years when we will no longer be able to hold down a job, prepared for the day when a spouse passes away, and prepared for the days that we don't yet know what they will bring.
If we prepare for these life events, we will be rich because we will be doing what we set out to do. Of course, the days you are preparing for may be different than what I listed above but if you save for them, nonetheless, then you will be prepared when you are ready to do the things you want.
So, don't set your goals to be rich. Set them to be prepared - extra savings to put away for a rainy day, savings to put away for retirement when you can't work, savings to put away for vacations, savings for a new home, savings for months or years you want to stay home to raise your children, savings for when either you or your spouse will be on your own, savings to start a business. If you are prepared for these events, then you don't need to save to be "rich," because you already will be - by doing the things you want.
In Real Life (IRL) - I'll admit that at one point in my life I had spreadsheets written out that showed at what age I would become a millionaire if I saved up x amount of dollars each month, and if I got x% of raises each year, and if the stock market went up by x% each year. Then I figured I would be "rich." Wahoo! Then what? So I would have a million dollars to my name. What does that mean? Is that really a good goal? No, not really.
When I realized that it would take longer than I expected to become a millionaire, I set more reasonable goals for myself and for my family. I did have a firm foundation in place since I had been putting away a couple hundred dollars per month into a mutual fund just to save to become that millionaire. But now that money had a purpose. Some of it was going to stay put as a rainy-day fund. The rest was going toward a house fund. I got serious about retirement and upped my contributions to my 401(k) and my IRA.
After I got married and we bought our first and current home with that house savings, we started saving so when we had children I could stop working full-time for the first 3-5 years of their lives to raise them. (Ahem, that has now turned into 8 1/2 years, but that's neither here nor there.) Then we started to get save to be prepared for the kids' college expenses. With our purchase of life insurance, we are prepared for the possibility that one of us may not be around.
That is how our savings stack up. We save for life events that we want to partake in, and unexpected things that could come our way. We haven't planned perfectly. Housing prices were higher than we expected when we bought. We had adoption expenses that we not specifically save for. And I couldn't go back to work when I thought I would. But we were still able to cover the things that we set out to do - at least much better than if we had not set out to be prepared for these events. So, I feel we are "rich" because we can do the things we set out to do. We can't set out on a cruise around the world on the drop of a dime. But we can prepare for it, if that's what we want. For other ideas to save money, check out Frugal Fridays.