AS A CHILD, I thought my father had a memory problem. He had a habit of repeating stories and sayings. It made me feel sad, until I figured out it was intentional. He didn’t believe in bells: School was never out.
“Make it a habit to keep and grow some of the money you make,” was one of Dad’s sayings. I was reminded of it recently, after reading that seven out of 10 Americans have less than $1,000 in their savings account—the sort of place you might turn if you have a financial emergency. It seems keeping and growing money is infinitely harder than earning and making it.
I am glad I recognized that early on, and started an automated wealth-building program right out of college. Author David Bach popularized this winning strategy in his bestselling book The Automatic Millionaire. What both Bach and Dad seemed to understand is that cash in hand is a bad plan.
I have trouble holding onto money that isn’t saved or invested. Perhaps you do too. It always seems to vanish for one reason or another. Maybe that’s why Warren Buffett advises, “Do not save what is left after spending, but spend what is left after saving.” That’s the power of automatic saving and investing. If I don’t see it, I won’t miss it.
And if you don’t get into the habit of keeping a part of what you earn and putting it to work, you lose a second and even greater opportunity: the opportunity to grow your money over time.
What people don’t always appreciate about compound interest is it is always working for you or against you. If you choose to forego the opportunity to earn interest, it’s an enemy. Let’s say you save $50 a week for 30 years. Without interest, you will have $78,000—and even less once inflation is factored in. But if the money earns 6% compounded annually, it will grow to $218,798. If it earns 8% compounded annually, it will grow to $325,593. It’s math. It’s education. It’s automation. Tick, tock, take stock in the compound clock.
Sam X Renick’s previous blogs were How to Keep All Your Earnings and Raising Money-Smart Kids. Sam is the driving force behind the “It’s a Habit” Company and its chief spokesperson, Sammy Rabbit, who is dedicated to improving children’s financial literacy. Sam has read and sung off key with over a quarter million children around the world, encouraging them to get in the habit of saving money.