Definition - Current disposable income less expenditures.
So in essence, this is the money you are not spending from your paycheck.
When thinking about saving we might think of it as a chore. Something we know we should be doing if we are not. If we are currently saving, often times there are no feelings of excitement. Saving carries with it a sense of boring old tradition or, even worse, a feeling of obligation. A penny saved is a penny earned.
One of the reasons that it might be boring is because an individual's savings often times is not doing much. It is just there waiting. In order for it to be savings, it has to be "safe" and not exposed to risk. We in fact have many obligations to our savings which might account for our feelings of resentment as a chore. We earn it, we care for it, and we protect it. What does it do in return? It is easy to feel like it is money that is not pulling its own weight. We may feel inclined to spend it as if we have earned the right to do so by not spending it previously.
Think of the virtues of money saved in a safe place. Here are a few:
The balance does not decrease unless you withdraw
It is there for you when you need it or want it
It offers a cushion between yourself and some of storms of life that are thrown our way that money can handle
It helps us attain goals such as the purchase of a home, a more expensive item, or to start a business
Acts as a foundation and springboard from which to venture forth and take risks
Grows as you add to it plus modest rates of return
The benefits of money saved take shape as a safety net. Something that you might not want to take the time to put up and build, but something you are grateful for when you slip and fall.
If I could choose one word to define saving, it would be "reliability".
To a person that has never been able to save money, either by choice or perhaps debt obligations, the ability to save might actually be a very exciting adventure. This is the first step out of the abyss that having no control over one's money can create. This is a new step.
To a person that is already saving money, likely the good feelings associated with saving are present and have been for a while. This person may benefit by setting some clear goals for their saved money that they might not have had in place before. This can help establish purpose and encourage them to step out into other avenues of exploration with their money.
I think that saving money is a very exciting. I believe that saving money is something that people should "want" to do as well as feel like they "need" to be doing. It is the saving of money that allows for so many other financial doors to be opened. One of the points I listed above was, "Acts as a foundation and springboard from which to venture forth and take risks". Think about a scenario for a moment. Imagine being debt free with a sizeable savings and a systematic savings plan in place for your income. What would you feel empowered to do?
I believe it is a lot easier for a person to risk when the worst case scenario is understood beforehand. If a person had no savings in place and a lot of debt piled up, every moment with money is risky. Every time money is spent might bring anxiety due to the risk of not being able to pay down what is owed in debt. If there is no debt but a person has out of control spending habits then there exists a risk of exposure. At any time, an emergency could spring up and put a person with no savings and preparation into a place of unknowns.
Savings can help define worst case scenarios a bit better. If all is lost on a business idea or a risky investment, then having a savings in place will help smooth out the bumps in the road and make them seem less volatile. A person with savings can stand up that much faster than those without in the event of catastrophe.
I like to use the following rules for savings.
Save at least 20% of earned income - This will help keep pace with changes in life. It may sound like a lot at first, but hold this number up as a goal at first and then the minimum later. I believe the feelings of security gained by saving will help fuel the fire to reaching the 20% mark.
Save 6 months of expenses - Segregate this money from your more accessible money by placing it in places one step removed from your normal money usage. Example: A credit union or a good online savings account separate from your institution where your checking account is located. The reason for this is that this becomes money that is just a bit further out of the reach of temptation for other uses.
Make the saving of money systematic - You can do this by automatic transfers or by disciplining yourself to immediately set this amount aside each paycheck. I recommend setting this up to be automatic instead of manual as this can assist you saving money by putting the action of saving money on auto-pilot. You can even do this through many direct deposit methods.
If a person can spend less than they earn, then they can save. Saving money, and keeping it safe, is the foundation of any financially stable empire. How stable is your financial empire?