“The habit of saving is itself an education. It fosters every virtue, teaches self-denial, cultivates the sense of order, trains to forethought, and so broadens the mind.” — Thornton T. Munger

Money and SavingsOn Friday, the headline screamed: Savings Rate Falls to Lowest Since ’33. The LA Times reported, “Americans again spent everything they made and then some last year, pushing the personal savings rate to the lowest level since the Great Depression more than seven decades ago.”

“The Commerce Department reported that the savings rate for all of 2006 was a negative 1%, meaning that not only did people spend all the money they earned but dipped into savings or increased borrowing to finance purchases.”

The experts say the cornerstone to wealth is learning to live within your means. I once heard a simple formula from Gary Simpson that illustrates this point:

– Earn $100 and spend $101 and you are in trouble.
– Earn $100 and spend $99 and you are not in trouble.
– That $2 makes a world of difference.

So what’s the problem with people in America? Why are they spending more than they make? The article concludes, “Economists have offered various reasons to explain the current lack of savings. These range from some people’s view that they have no need to save because of gains in their real estate or stock holdings to the many middle-class wage earners’ desire to maintain their current lifestyles even though their wages have been depressed by global competition.

Marketplace on NPR had its own thoughts and then provided an interesting international comparison. Amy Scott reports, “In China, one of the world’s fastest growing economies, the personal savings rate is an estimated 30 percent.” Thirty percent! Just give them another ten or twenty years and China will rule the world and economy.

Americans need to play catch up. On Money magazine’s list of 25 Rules to Grow Rich By, the Twelfth Rule is: “If you’re not saving 10% of your salary, you aren’t saving enough. The earlier you start saving, the less you’ll need to set aside every year to meet your goals. That’s because you allow your money more time to grow — the gains on your invested savings will build on the prior year’s gains. That’s the power of compounding, and it’s the best way to accumulate wealth.”

“Saving at least 10% of your annual salary for retirement is recommended, but the older you start saving, the more you’ll need to save. If you start at 50, you may need to put away 30% a year and still postpone retirement by a few years.”

Having ample savings is synonymous with being able to experience an effortless retirement. Yet independent research points to lesbians in particular needing to step it up when it comes to this type of financial planning. I suppose if saving was so easy, then more people would do it. The trick is putting it away before you can spend it. You don’t even miss it because it forces you to live without it.

AG Edwards offers A Dozen Simple Tips on Saving Money. The key to getting started is to pay yourself first. They suggest, “Make saving a regular part of your financial routine, along with paying your bills. Divert even a small amount of money from each paycheck — through direct deposit if offered — into a savings or investment account. If you never see it, you don’t miss it, and you’re less likely to spend it on things that don’t fit in with your longer-term plans and desires.”

Bottom line: we need to spend less than we earn. This plays counter to our culture with its values of consumption and instant gratification but it’s the rule that will pay off in the long run. Save now. Save for a rainy day. We all should be saving a portion of our income!