The savings rate is the difference between income and spending. It's a residual; it's what's left over. It's also a flow. On a monthly basis it looks at how much people earn from all income sources versus how much they spend.

While people in other countries are saving 10%-15%, or more, of their annual incomes, the savings rate of Americans is negative (see Materials page/articles: "Is Negative Savings Rate A Problem?). According to the Commerce Department, savings as a percentage of after-tax income have been reported the lowest since the government began tracking the rate on a monthly basis in 1959.

Saving money is not unspiritual nor does it represent a lack of faith. Saving money is wrong only when it turns into hoarding (Luke 12:20-21). Saving money in order to purchase a future need and prepare for the prospects of advancing years are signs of a wise steward. If saving money does not become a lifestyle, DEBT will! (see Money Management Bible Study - "Becoming A Wise Saver")

Personal Saving Rate

FAQs

• Why save money?

• How do I save money?
• What should I do with the money I save?
• What does the Bible say about saving money?

First, you need to understand the difference between the terms save and invest. Saving money merely means to put it aside as a store or reserve. Investing money means to commit it in order to earn a financial return.

There are basically two practical reasons why you need to save money:

A strong financial foundation is designed to take the anxiety, pressure and stress out of personal money management. It puts a buffer between you and danger. A strong financial foundation is established in order to deal with the inevitable unexpected negative financial events in life (Proverb 27:12). In order to establish a strong financial foundation, you must complete the first three steps of the Five-Step Plan. The need to build a strong financial future is a reality that we all must face. Time is your greatest asset and procrastination is your greatest enemy. Once your financial foundation is established (steps 1-2-3 of the five-step plan), you should then start working on steps four and five.

As basic as it might sound, before you can save money, you have to spend less than you make. In order to do this, you must do one of two things or a combination of both:

Limit your lifestyle (Proverb 21:17) and or Increase your income (Proverb 13:4).

A money principle that seems to prove itself true more often than not is "the more you make, the more you spend" (Ecclesiastes 4:8; Proverb 27:20). The fact is, it's not how much you earn that is important but how much you keep of what you earn (Proverb 18:9). I have seen high-income earners that have retired broke and average income earners that have retired millionaires. When you limit your lifestyle, you will obviously reduce your monthly expenses. This might not only include the variable expenses (food, entertainment, personal, etc.) but also the fixed expenses (housing, auto, insurance, etc.).  Once your expenses have been reduced to a minimum, you might also need to consider short-term options for increasing your income (working more hours at your present job, taking on an additional part-time job, etc.). (Proverb 6:6-8) Long-term, you should always consider making yourself more valuable through further education or increasing your skills (Proverb 22:29). The key to gaining control of your day-to-day finances is the BUDGET.  A budget will allow you to quickly identify and control negative spending habits. The monthly budget is the most important tool in personal finance.

Once you have identified the amount of money that you can save each month, those saved dollars should be systematically directed towards five goals called the "Five-Step Plan". The first three steps make up the financial foundation.  Steps 4 and 5 are the keys to building a solid financial future.  Steps 1, 2, and 3 should be accomplished in order. When step 1 has been completed, you can then start working on step 2. When step 2 has been completed, you can move to step 3. Accomplishing steps 4 and 5 will be a life-long process that will ensure a solid financial future.

Most Americans are living paycheck to paycheck (week-to-week) with little or no cash reserves to call upon in the event of a negative financial event. Assuming that your monthly budget is in place and all of your monthly expenses (including minimum payments on debts) are covered, all of your surplus dollars should be directed towards building a cash reserve in your checking account. How much? To start with, a minimum of $1,000. The reserve in your checking account will allow you to stop living week-to-week and serve as a temporary emergency fund until you can get to step 3 where you will build a real emergency fund in your savings account. If at anytime during the accomplishment of steps one through three you are required to use any of the $1,000, you must immediately return to step one in order to restore your checking account surplus to $1,000 (see Budget - "How do I transition from living week-to-week to living on a monthly budget").

The second step is to systematically apply all of your monthly surplus dollars towards the elimination of consumer debts (credit cards, auto loans, student loans, furniture & appliance loans, etc.) using the Debt Repayment Plan described in the section on DEBT.

The last step in building the financial foundation is the establishment of a real emergency fund (contingency account). The emergency fund should be used only for real emergencies! These might include unanticipated medical expenses, a temporary layoff, a transition between jobs as a result of downsizing/termination or unexpected auto repairs. Financial planners often recommend having 3-6 months living expenses set aside in a contingency account. I suggest your goal be a minimum of $10,000. The emergency fund is not an investment but rather a cash reserve. The emergency fund should be located in a place that guarantees safety and stability of principle and is completely liquid (easily and quickly converted to cash). A good place to store these funds would be a money market mutual fund (MMF), a credit union or even a NOW account at your local bank. MMFs are essentially as safe as insured money market accounts offered by banks, have check writing privileges and charge no withdrawal penalties, but pay 1%-1.5% more. (Proverb 27:12).

Steps four and five can be started simultaneously. At this point you are ready to begin building a strong financial future. The purpose of step four is to get you into a position to be able to pay cash for all of your known major purchases (autos, vacations, Christmas, household furnishings, down payment on a house, etc.). Paying cash for major items will allow you to enjoy the benefits of compounding in a positive direction. Compounding is magical, but when it is in a negative direction it's like a chain and ball. These funds should be stored in an account that offers safety and stability of principle along with liquidity unless the item you are saving for will not be purchased within the next five years. In such a case, you can consider options that might allow for a greater return. Either my FORM 4 - Savings Distribution sheet or FORM 8 - Investment Distribution can be used as a tool for tracking your progress as you save for major purchases. (Proverb 21:5)

Step 5 requires that you begin investing your savings in order to provide (I Timothy 5:8) financially for the long-term needs of your household and to increase your assets in order to serve God more fully. You need to determine your investment goals and develop an investment program that fits your tolerance for risk (see Managing Your Investments). Your enemies are inflation, taxes and procrastination (not necessarily in that order). I recommend that all of your long-term investments first be invested through your qualified investment options (IRAs, 400 series plans, etc.).

Refer to the section on Long-Term Planning for helpful tools and information. As you gain control of your finances and begin to build wealth, you must be careful that you do not put your trust in your riches. There is nothing wrong with the accumulation of wealth as long as your motives are pure (Psalm 62:10).