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Savings Rates Are Determined by Developing the Right Habits and Principles

November 14, 2009

| MoneyRates.com Senior Financial Analyst, CFA

Seven Questions that Could Explain Your Savings Rate

National Save for Retirement Week, held in October, was an effort to raise awareness of the need to save for retirement. It couldn't have been more timely. A recently released poll by MoneyRates and GetRichSlowly.org showed that 52% of respondents feel their retirement savings are not on track. This coincides with information from the Employee Benefit Research Institute showing that 53% of Americans have less than $25,000 in total savings and investments.

Contemplating how to get people's savings rates up raises a fundamental question--why are some people savers and others are not?

Naturally, different circumstances have something to do with it. Some people make more money than others, and some people have unavoidable expenses like medical bills. Still, leaving aside all the outside variables, the fact remains that you can take two people with the same incomes and responsibilities and find that they have vastly different savings rates.

Determinants of Personal Savings Rates

So why are some people savers and some are not? The following questions could provide some insights.

  1. Do you plan ahead or live in the moment? It's good to be a free spirit, but some things in life require planning. What good savers know is that setting aside some time for planning allows them to be more carefree the rest of the time.
  2. Do you take satisfaction from achieving goals? To counter the impulse to spend money, it is important to get gratification from seeing your savings accumulate and from meeting savings goals.
  3. Do you feel personally responsible for what happens to you and your family? When you slip and fall, do you consider it your own mistake or look for somebody to blame? People who always feel events are someone else's fault or responsibility will tend to be slower to take charge of their financial futures.
  4. Are you insistent on getting a good deal for yourself? When you see that savings account interest rates and CD rates are low, do you think they are not worth bothering with, or do you see that as all the more reason to shop for better bank rates?
  5. Are you uncomfortable with debt? Americans have been conditioned to accept being in debt as a natural state of affairs, but good savers don't rest unless they have a concrete plan for getting out of debt, and they aren't really comfortable until they are debt-free.
  6. Are you comfortable with your own choices, regardless of what others are doing? Peer pressure is the root of conspicuous consumption. Keeping up with the Joneses can be a dangerous thing--these days, the Joneses are probably deeply in debt and about to default on their mortgage. The less you are influenced by the judgment of others, the less you will spend just to keep up appearances.
  7. Do you share your financial vision with your family? Saving requires sacrifices, so it is vital to a good relationship to have your spouse or partner on board with the game plan from the start. Communicating the principles behind your plan is also an opportunity to educate your kids about money.

Some people may be more naturally inclined toward savings than others, but everyone can work at it. Understanding why you are or are not inclined to save can help you in your efforts to improve your personal savings rate.



National save for retirement week: http://www.retirementweek.org/xp/plans/retirementweek/

Aileen Ambrose • Highly effective savers develop a system for success • Apr 29, 2007 • Sun-Sentinel: http://www.sun-sentinel.com/business/sns-yourmoney-0429savers,0,4368238.story


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