I often wonder how so many people afford the things they do. Sometimes I feel like I’m the only person who is not moving into a brand new house, getting a brand new car, buying name brand clothes, or going on multiple vacations a year. Anyone else? I ask my husband all the time how in the world some of the people afford to live in such expensive homes. His reply is the same every time. “They can’t. They’re not saving.”
I shrug my shoulders and half-heartedly believe him. I think, “Surely people wouldn’t put expenses on their credit card that they can’t pay off that month. And surely people save for college and retirement, at least retirement.” It wasn’t until I read some articles on the astonishing percentage of people who are not prepared for retirement, that I really started to believe him. Then we visited with our wealth advisor, who counsels hundreds of people regarding their future, when he told us most people are not saving for retirement or for any type of emergencies (or big future purchases). He recently met with a guy who was making $250,000/year and about to retire. He only has $40,000/year saved to live on during retirement. Can you imagine living off less than 1/5 of your income after you retire? Wow! I asked him how this was even possible and his reply: “His lifestyle choices over the last several years. He didn’t save properly.”
Our budget is not perfect, and we’re learning as we grow (that’s why I love this blog…I learn some great tips from you guys), but there are a few things we are adamant about saving for. I’m like most people, and loathe saving. I find excuses not to save and “live in the moment.” But saving is necessary and part of a solid budget. I thought I’d share 5 reasons why we save money.
1. College
Did you know college is increasing by 5-6% a year?! It’s projected that a state school will cost $44,000 on average by the time my 3 year old is 18 years old. And that was projected with a conservative 5% increase. This means college for ONE of our kids will be over $176,000 for a 4 year term, granted he doesn’t get any scholarships or aide. Then you add our second son. Plain and simple, we cannot afford $44,000 a year for college. That’s basically what a teacher makes in Texas.
Therefore, we save for college. We’re hopeful they will earn some scholarships and financial aide, but are preparing for any costs that will arise. We have an ESA for Beckham (although we may stop contributing to it…it just can’t make enough for what we’ll need), but we recently are looking at our life insurance to pay for college. We both do not want our boys taking on huge student loans, if any. It just doesn’t make sense to us. We don’t want them to owe money BEFORE they even make money and incur interest as well. Who knows what college will be like in 15 years, but we’re saving for what we know now.
2. Retirement
This is pretty self explanatory. You need money when you get old and cannot (or do not want to) work anymore. The problem isn’t really people not saving, it’s not saving enough. For us on one teacher income, our TRS (teacher retirement system) just will not pay enough (although still good) when we are older. Therefore, in addition to that, we fully fund our Roth IRA’s ($917/a month for both of us), as well as having our life insurance plan (this is the big money maker). If you do the math, this is a a large part of our income, but our goals when we’re retired to have a lot of money to live on and GIVE! I’m assuming we’ll spend more than we do now because with two people not working, we’ll probably be spending more time on things that cost money (vacations, traveling to see kids, entertainment, eating out, etc.).
3. So we won’t go into debt
We have a savings account so that when emergencies come up that we cannot afford in our regular budget, we won’t go into debt. We try to under budget to cover unbudgeted expenses since there is always something that comes up, but knowing money is available if we need it is comforting. We use both a regular savings account and our life insurance fund for these purchases if needed. The Bible says in Proverbs 22:7, “The rich rule over the poor, and the borrower is servant to the lender.”
4. Give, give, give
Another reason we save is to be able to give! We’ve been on the receiving side and it is such a blessing. We want to have opportunities to give, especially when we’re older and our children are grown. We want to leave a legacy for our children’s children. Proverbs 13:22 says, “A good person leaves an inheritance for their children’s children, but a sinner’s wealth is stored up for the righteous.” We want to give as stated in 2 Corinthians 9:7, “Everyone must give as he has decided in his heart, not reluctantly or under compulsion, for God loves a cheerful giver.”
5. God says it’s wise
This brings me to the final and most important reason we save money. God has A LOT to say about saving money and investing it. So much that I cannot give all the Scripture references here in this post. God definitely commands us to save our money wisely and shows us the benefits of investing our money. Matthew 25:14-27, The Parable of the Talents, explains how to save money. He calls the servant who invested it and made more, “good and faithful.” But the one who buried it out of fear, he calls, “wicked and slothful.” Here are some verses that encourage us to save wisely:
–Proverbs 21:10 – There is treasure to be desired and oil in the dwelling, but a foolish man spendeth it up. Simply put, it is foolish to spend all the money you make. There is treasure to be found in saving!
-1 Corinthians 16:2 – On the first day of every week, each of you is to put something aside and store it up, as he may prosper, so there will be no collecting when I come.” Saving money and planning it out allows you to reach your goals.
-Proverbs 13:11 – “Dishonest money dwindles away, but whoever gathers money little by little, makes it grow.” This verse is very encouraging to me. Little by little, you can completely change your future and your children’s future. If you haven’t read The Millionaire Next Door: The Surprising Secrets of America’s Wealthy”, I’d recommend checking it out.
Anything can happen in the future, but I believe God will honor wise choices as he did in the parable of the talents . Spend frugally, save wisely, and trust God will take care of your future.
Link Ups: Thrifty Thursday
Great post! But question, how are you using your life insurance policies to possibly pay for college and be a safety net?
They earn 4% compound interest, and we can take out whatever amount we need anytime and it STILL earns 4% interest on the ORIGINAL amount. We have to pay it back though at a 4.75% rate, but you still come out on top because of compound interest. You pay a premium each month to have money in it (the higher the amount, the higher the premium, but that also earns interest). So by the time college comes around, we will have a lot of money in there, pending we don't take it out before then) to use for college. It's not documented as assets for college to look at. For example, when colleges look at giving "Johnny" any aide, they look at all the money the parents have. If you have a lot, your aide is less. And vice versa. This money is not seen by colleges (ESA's are), so our chances for aide/scholarships are higher. I don't like how the college system works in that regard (I think students should EARN scholarships based on their EFFORTS/GRADES/TALENTS, not based on how much your parents make, but that's how it is). Does that make sense? And if we don't use for college, or only use part, we get to use it for whatever else we need. It's all kind of confusing, which is why we have to rely on our wealth adviser for all the answers. And it always changes. 🙁
That is really interesting, I'm not familiar with that type of policy. We have the Term Life Insurance policies, which doesn't appear to have that option. Yours sounds very neat though!
I believe ours is whole life but I'll double check with hubby when he gets home.
Isn't that crazy college amount NUTS?? Such a good post!! I feel like you should be a financial advisor!!! I'm going to get that book!
It's ridiculous! I don't think it will be able to last…they'll have to level out somewhere, no one will be able to afford it. My dad thinks college will evolve into more of an online type format with all the technological advances, which would be cheaper. I definitely can see that happening in our kids' future. I tell Ryan he should be a financial adviser…I think he would like that, but not sure he wants to take a leap into another field right now.
I love reading the posts you do about finances. It really is insane how many people live above their means, lord knows I have been guilty of it too. Mark and I were just talking a few weeks ago that we really need to watch what we are spending. We have way too much unaccounted for money at the end of each month. Thanks for sharing your tips and wisdom
I predict that college tuition will be the next Housing bubble that bursts! Have you thought about UTMA accounts and/or 529 plans? I find them more beneficial than ESAs.