060
Chapter 8
How Much Should You Save?
In This Chapter
✧ Determining how much you can save
✧ Factors that affect how much you’ll save
✧ Looking at what’s left after expenses
✧ Sticking to your savings plan
✧ Making sure you pay yourself first
 
 
How much money should you save? Two dollars a week? Ten dollars? Fifteen? People struggle endlessly to figure out how much they should be saving. They work hard to strike the perfect balance between how much they spend and how much they put away for the future. They feel guilty for dipping into their savings to buy something they really want. Or, they don’t feel guilty and keep dipping into their savings anyway.
Trying to figure out how much money to save can be confusing, but there’s really no reason to get stressed about how much to stash away. How much you save is a personal decision based on your own situation and the factors that affect it. In this chapter, we discuss how much money you should save and take a closer look at the benefits of starting to save now, while you’re very young and your savings have time to add up into big bucks down the road.

Looking For a Magic Formula

If you’re looking for a magic formula for savings, you won’t find it here. That’s because, at your age, there isn’t one. Some teens probably have the means to save $100 a week, whereas others can save nothing because they don’t earn anything, or expenses make it impossible for them to save.
061
Imagine That
The average American saves about 4 percent of his or her annual income. That’s less than what some money planners recommend, but definitely better than nothing.
Some money planners say you should save at least 5 to 10 percent of your take-home pay, and that certainly would be desirable. In fact, it’s desirable to save as much of your pay as you can. How much you’ll save, however, depends on various factors, such as how much you earn, the expenses you have, and how motivated you are to save.
Let’s have a look at these factors to see how they affect your ability to save and the amount you’ll be able to save.

How Much You Earn

It’s pretty much a no-brainer to figure out that what you’re able to save depends a lot on how much money you earn. A lot of teenagers, for whatever reasons, don’t have outside sources of income. That is, they don’t have jobs that pay.
Others, however, love to earn money and might even have more than one part-time job.
062
Money Matters
Remember that allowance counts as income. Even if it’s your only source of money, you can still save some of it if you’re committed to doing it.
Teens who work and earn money have greater ability to save than those who don’t; unless, of course, you have another source of money such as regular payments from your fabulously wealthy great-aunt who’s taken a special interest in your financial future. No wealthy great-aunt in your family, either? Oh, well. Notice I said that working teens have a greater ability to save than nonworkers. However, that doesn’t necessarily mean that all working teens save money.
063
Money Matters
The only money you can save is that which you don’t spend, either on things you must pay for or on things you choose to buy.

Expenses

You learned in the last chapter that some people find it easier to save money than others, and teenagers are no exceptions. Some of you, no doubt, have a lot more trouble earmarking money for your savings account than others. You’d much rather take your whole paycheck over to the mall and see what’s new at Old Navy or American Eagle.
Some people find it difficult to save money because they like to spend it. Others find it difficult to save money because they have to spend it. You can earn $100 a week, but if you’re responsible for paying room and board to your parents and buying all your clothes and everything else you need, you’re not going to have much money left to take to the bank and stick into your savings account.
On the other hand, you can make $25 a week, and be able to save $24.50 if your only expense every week is a pack of gum from the drug store. It’s great to save money, there’s no question about it. The only money you’re able to save, however, is that which you don’t spend.
If you choose to spend all your money and don’t save a cent, shame on you. However, if you can’t save money because you must spend all that you make, there’s little you can do about it. Wait until you get a pay increase, or try to cut your expenses. Whatever you do, don’t increase your expenses unless your pay increases as well.

Incentives for Saving

If your parents told you when you were 12 that they’d match whatever money you managed to save for a car by the time you turned 16 or 17, I’d say you have pretty strong incentive to save all the money you can. Maybe you and your friends have been planning since you were in tenth grade to rent a place at the beach for a week as soon as you graduate. Ten of you will be staying in a house that costs $1,500 to rent, so you’ll need $150 plus spending money. That, too, is a strong incentive for saving.
Incentive to save money isn’t much different from incentive to do anything else. We can force ourselves to do pretty much anything, but it’s a lot more fun—and a lot easier—to do something for which you can see a good reason.
If you’re having trouble saving money, think about whether you have some incentive to do so. Saving your money for something you really want and watching it grow toward your goal can be a lot of fun.
064
Money Matters
If you’re having trouble saving money, try to give yourself an incentive. Think of what it would feel like to walk into the music store and buy that guitar you want with your own money or to buy your parents a really special gift for their 20th wedding anniversary. Provide your own incentive to save.

Future Goals

Saving money to meet future goals is similar to having an incentive to save. You’re saving now for something you know you want in the future. It can be a car, your college education, or a brand-new computer of your own. Some teens even start saving money to help pay for their weddings or the homes they hope to buy in 10 years.
Kate Bailey is 21 now, and has replaced the car she bought for herself when she was 16 with money that she saved from babysitting jobs. Bailey, of Malvern, Pennsylvania, says she set a goal of saving enough money to buy a car when she was just 10 years old.
“I used to keep the money I made in a bank in my closet, and when I accumulated $100 or so I would take it to the bank and put it into my savings account,” Bailey says. “I never really bought anything with that money because I knew that when I turned 16, I wanted a car.” When she turned 16, Bailey bought a used Honda Accord for $5,000. She kept the car for almost five years, then traded it in for another used Honda. You guessed it. Her second car also was funded by money she earned through baby-sitting and other jobs.
Everyone has different goals, some of which are a lot more expensive than others. As you get older, you’ll need to start looking at more long-term goals. You might decide you want to retire before you’re 60, which requires a lot of savings. You might want to buy a bigger home, or a place at the beach or in the mountains, or get some money put away for your kids’ college. As your goals for the future take shape and change, the amount of money you’ll need to save and the way you save it also are likely to change.
065
Scary Stuff
You can talk and talk about the importance of saving money, but if you aren’t committed to doing it, you’ll find it very difficult. It’s just like sticking to an exercise program. It’s easy to have good intentions, but finding the commitment to do it often is difficult.

Commitment

A person’s commitment to saving money also will affect how much he or she will save. There are several ways that a person can become committed (or not) to saving money. Teens whose families have stressed the importance of saving and managing money usually are more committed toward doing so than those whose families put little value on saving.
If you’ve watched your folks spend all the money they’ve ever earned on this or that or the other thing and they’ve told you all along that college is on you if you choose to attend, you might react in one of a couple of ways. You could follow their example and spend everything you earn, never realizing how important it is to save some money because of their example. On the other hand, you might recognize what they’ve done and make a commitment to save your money instead of spending it on things you don’t need.

Deciding What to Save and Sticking to Your Plan

Once you’ve considered all the factors that affect your personal ability to save money, you should be able to decide how much is reasonable for you to put away. The way to do that is to add up all your expenses and deduct that amount from the total of your income. Expenses include everything that you spend your money on: clothes, snacks, lunches, dues, entertainment, and so forth.
Once you figure out your true expenses and deduct them from your total income, you’ll know how much money you have to work with. Let’s say, just as an example, that you earn $46 a week (take-home pay) from your part-time job at the dry cleaning shop. Plus, you help an elderly neighbor do laundry every Saturday morning, for which you get $8. Your total earnings are $54 per week.
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Money Matters
Don’t assume, if your expenses are high, that they can’t be reduced. Cutting expenses is a great way to increase the money you’re able to save. You might find that some of the things you consider true expenses will hardly be missed at all if you cut them.
Out of that $54, your expenses might look something like this:
✧ Lunch at school—$2 a day, or $10 a week
✧ A movie and burgers with your friends every Friday night—$12
✧ Offering to your church or synagogue—$3 a week
✧ Miscellaneous—$10 a week
When you total up your expenses ($35) and subtract them from your earnings ($54), you have $19 left. That’s the pool of money from which your savings will come.
That doesn’t mean that you have to save all of the $19; it just means that $19 is what you have available after deducting your expenses. If you save all of the $19 you have left over, you’d be saving more than one-third of your income. Doing so would put you in great shape down the road, but it might not be feasible to save that big a percentage of your total income. Remember though, as you get older, your expenses will increase along with the amount of money you earn.
It makes good sense to save as much as you can while your expenses are low, even if you’re not earning a whole lot of money. As you learned in the last chapter, even a little savings now can add up to big dollars in the future. Even saving $5 or $10 per month adds up if you have it in an account where you’re earning interest and the interest is compounded (more about different ways to save and different kinds of interest in Chapter 9, “Making Your Money Work for You”).
Consider the following:
✧ If you save just $5 a month in an account that pays 5 percent interest and is compounded quarterly, you’d have $62 at the end of a year; $341 at the end of five years; $779 at the end of 10 years, and $1,340 at the end of 15 years—all that from saving just $5 a week.
✧ If you save $20 a month, or $5 a week, you’d have $250 at the end of one year; $1,365 at the end of five years; $3,115 at the end of 10 years; and $5,359 at the end of 15 years.
✧ If you’d manage to save $100 a month, or $25 a week, you’d have $1,233 at the end of one year; $6,825 at the end of five years; $15,576 at the end of 10 years; and $26,794 at the end of 15 years. Maybe that’s enough incentive to get you saving!
Regardless of how much you decide you’re able to save, stick with it. Don’t decide to take a week or two off from saving because you run into some extra expenses. It’s often difficult to give up something you want to do so you can fund your savings account, but it’s way worth it in the long run.
067
Imagine That
Benjamin Franklin is credited with saying, “Money begets money and its offspring begets more.” What he was saying is that earning interest on your savings is a good way to keep the savings growing.

Paying Yourself (and Your Savings) First

A good way to think about the money that you designate as savings is to consider it your pay. And you should always, always, always pay yourself first. If you get a paycheck from an employer, you might be able to have money automatically taken out of your pay and placed into your savings account. Check with your bank to see if this is possible. If not, discipline yourself to deposit your savings immediately.
If you think of saving money as doing a favor for yourself, it becomes a lot less of a drag. There’s no amount too small to save; even $1 a week will add up. Many people make the mistake of thinking if they can’t save $30 or $40 a week, there’s no point in saving at all; however, you know differently.
068
Imagine That
Money that earns 5 percent interest will double itself in a bit more than 14 years. Money that earns 6 percent doubles in 12 years, and money that earns 7 percent doubles in 10 years. It pays to get the best interest rate you can find.
Whatever amount you decide to save will be right for you. Don’t try to save more than you’re realistically able to do because you’ll get frustrated and might not save anything. On the other hand, do save as much as you comfortably can handle. You’ll be glad you did.
 
 
The Least You Need to Know
✧ Factors that affect how much you’ll be able to save include your income, expenses, incentive, goals and commitment.
✧ You need to add up all your expenses and subtract them from your income to find out how much you have left over to use for your savings.
✧ Regardless of what you decide you’ll save, it’s important to stick with it and save regularly.
✧ Even small amounts of money will add up to significant savings over time.
✧ Thinking of saving money as a payment you make to yourself might make it easier to see your money go into an account, rather than into your wallet.
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