Chatting Money

So in the ideal world, you are regularly saving 20% of whatever income you take home. If my (still) fictional friend Jenna makes $2500 in a month, $500 should go straight into either savings or a retirement spot you’ve created. I wanna get more specific on why, and how incredible it can be when that savings works for you, and how powerful it can be in your life!! Everyone should feel the excitement of saving!! Too much? I’ll be more specific.

I’ve always been a bit of a saver. Who knows how this works, but I have an older brother, and if we got allowance or money from babysitting or doing odd jobs, I saved it right away – he figured out immediately how to spend it – Star Wars action figures were a strong option then. (And maybe again now.)

So clearly we’re not all built to save, and for many, the desire to spend it outweighs the excitement of keeping that money and watching it grow. In America, we are a crazy consumer-istic society – there are shoes to own, trips to take, nice meals to eat, Amazon items to buy, nicer cars to have. I get it – so you have to make choices. Let me tell you why I get zesty about saving, yep, I just said zesty.

The magic of all this is compounding interest. Doesn’t that sound sexy – I’d like to help to re-brand the terminology. Insta-money? Will keep working on it. Essentially it’s that money grows more money creating more money. Like Gremlins, when they get wet. It’s like losing a pound makes it easier to lose 2 pounds. THAT doesn’t happen in dieting, but it DOES happen with saving money. How is that, you ask?

I like sports, I like to play them, watch them. I watch Hard Knocks on HBO, a reality show about making it in the NFL. I’m absolutely never going to make you watch, BUT I was watching one day, and Carl Nassib is in the locker room telling his teammates on the Cleveland Browns about saving money and the power of money making money all by itself (compound interest/insta-money), and he finds it SO fun, he won’t buy a Rolex (“rollie” when you talk fancy) to impress Taylor Swift – whaaaaattt? This clip gives me the giggles – it’s only 1m45s, and about 83% of it is bleeped out because nobody finished a sentence without obscenities, but ya gotta watch. The guy is only 25, all psyched up about saving, and we should be too!!

I adore Nassib’s enthusiasm, but I gotta edit some of his facts. In this clip, he does say that if you earn 10% on your savings, every 7 years you double your money. He’s right about the math –

• Start with $1000, after 1 year, you have 10% more, or $100 more = total $1100
• Starting year 2 with $1100, that $100 you earned in year 1 now starts growing too!! By year 3 you have another 10% more, $1100 + $110 in interest = $1210
• Year 3, the interest from year 1 and year 2 is ALSO growing, so 10% of $1210 gets you $121 more added = $1331!!!
• Check it out….after 3 years, we have $331 more by saving $1000!!
• This keeps going, and so after 7 years, you have $1949 – essentially double the $1000 you saved.

Now the edit I want to make is his assumption that you can make 10% just by SAVING – which sounds to me like you just opened a savings account, right?? To get 10% on your money, that would require investing in stocks or other investment options, we won’t jump into all that RIGHT now.

So let’s look at it if we actually DID put it in a savings account. I’m a fan of bankrate.com, and at any time, you can go there and see what the BEST savings rates are right now, which accounts have which minimums, it’s very handy. Today it shows PNC Bank is at 2.35% – which chaps my hide, because my savings account is with Marcus (by Goldman Sachs) at 2.25%. I must sidebar here – this new service is actually called “Marcus: by Goldman Sachs”, which only makes me think of “Gucci by Tom Ford”…you know, double name dropping. Even savings accounts, obviously.

Anyway, the point is, today you could get 2.35% interest by simply putting your money in a savings account. Fun friend Jenna was going to save $500 each month, right? Here’s how that works:

• After 1 year she has earned $11.80 => $511.80 going into year 2
• That makes $12 more => $524 by end of year 2
• Which makes us $12.30 => $535
• And I’ll fast forward to the end, like a cooking show where they open the oven and the thing we just prepped is already cooked…after 7 years we have $588. So we make $88 on $500

It’s not as sexy as the 10%, but making an additional $88 by doing absolutely nothing yourself is NOT BAD. And if you save $500 every MONTH, each of those $500’s make themselves $88, so after a year, you’ve saved $500 x 12 = $6000….and 2.35% interest compounded over 7 years takes you to $7056…which is all those $88 added up.

Was this all too much math? We’ll keep talking about ways that you CAN get more than 2.35%. But for safety in your daily financial life, you ideally want to always have 6 months of living expenses saved up. Jenna again – if she is spending $2000/month (which was her 80% of paycheck spending – 50% fixed life costs plus 30% fun costs), then she’d ideally save up $2000 x 6 mos = $12000 for financial security. At a rate of saving $500/month, that’s about 24 months, BUT actually, she’d been earning interest every month, so it would actually take about 22 months to save (I like spreadsheets, I did the math, happy to share). The point here is you want to have the 6 months savings – gives you choices to leave a job if needed, pay for any emergency in life – without the terror of going broke overnight. So if you don’t have your 6 months saved up, dig in, start with whatever you can and let interest grow you more interest!!

This was a lot of math written in a blog. Here’s the point – saving money makes you more money, and football players get it, so we can to. Savings will give you comfort as we make every other choice about money. Are you guys able to save? Anyone have advice on other savings accounts they love?