It’s safe to say that before you began reading this post, you had no idea you were blinking. Blink, blink, blink. Whatcha going to do about it now that you are aware of your fluttering eyelids? My guess is that your memory will last as long as a gnat, and you’ll forget as soon as you finish reading this post.
It’s amazing how we can blink roughly 36,000 times a day and not even be aware. Yet, if we were to be consciously aware of our need to blink, we’d probably drive ourselves mad. How great it is that our bodies protect ourselves from insanity by doing the things for us we have no desire of doing ourselves.
Blink – SUDDENLY YOU’LL WAKE UP
Our little habits create ourselves and we don’t even know it until we wake up one day and say “Holy shitake!” I did that once with my 401K after contributing the max every year for 10 years. Every month, roughly $1,300 was deducted from my paycheck for 120 months until it accumulated into a nice sum of money without even realizing it.
I have no idea what my returns are, since there was also 401K matching and profit sharing as well. For all I know, my 10 year real rate of return was zero since the stock market performed so badly. The funny thing is, I don’t really care because it’s all fake money anyway since I can’t tough it until 59.5 years old.
The sum after 10 years is also much larger than $1,300 X 120 months because of all the matching and profit sharing so it’s hard to figure out. But, by doing something I’m supposed to be doing without even being aware, there it is, a nice sum of money that * might * be around when I retire.
The same thing goes for savings. If you regularly flush money out of your “go broke bank” and into your savings bank long enough, you’re also going to wake up one day and be astonished at what you’ve accumulated. You don’t have to manually transfer money each time your paycheck hits because everything is done automatically, just like blinking.
If you get a nice lovely bonus end of year, you may have to click some transfer buttons, but it’s all part of the unconscious routine to wealth accumulation.
Blink – SO EASY ANYBODY CAN DO IT
Blinking comes naturally to most people. Most everyone does it without thinking. Savings is the exact same way. Only someone with a genetic defect can’t or won’t save money consistently without giving it a second thought.
China’s gross domestic saving rate is roughly 45% of GDP and the Japanese save 30-40% of their income every year. So what in Hamburger Nation is wrong with the 330 million Americans with a sub 5% savings rate?
The answer is that the often quoted low savings rate in America is bogus because the way we calculate savings is outdated.
I firmly do not believe that you and I are that weak to only save less than 5% of our income. Just ask yourself how much you are saving, and the answer is clearly more than 5%!
Develop Good Habits
The best habits in the world are those you do without thinking. When you’re in an elevator, you let the ladies go out first and then ask for their phone numbers. When you’re subsequently on the date, you say nice things and pick up the check.
When you meet a friend, you’re always 10 minutes early instead of 10 minutes late. When you’re part of a personal finance blog network, you work on building healthy relationships.
When you have the privilege of getting a higher education, you take advantage and get good grades. So many good things are done unconsciously. Now all you have to do is remember to breathe.
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Regards,
Sam
I like how you associated automating your finances with blinking. Great analogy. I’m a big fan of automating your finances too, and I think we should all aim for 30% savings rate, but I suppose with huge taxes taken off the paycheque it can be a bit more difficult to do this in Canada (but I am likely making excuses!)
The economic incentives are set up to reward spenders, not savers in the US. From low interest rates to high taxes on interest incomes, the incentive system is ass backwards.
I find our national savings rate troubling too. I definitely think that there is sampling bias though in the PF community. Many people who are at least money conscious are going to be more interested in (or at least have less aversion to) saving more than the norm. I can think of many people will scold you for “only saving 20%” and rightfully so in many cases. This is in line with your comparisons other national savings rates (a topic that I have always found interesting). it’s about culture, and there appears to be a culture to the PF community as well Anyway, the unconscious savings (effortless) does make the process accumulating wealth a heck of a lot less painful. That in itself if worth embracing. Regards!
Not a direct analogy, but I remember reading an article about a ballplayer who grew up in Central/South America, learning to hit as a young kid by using a stick to swing at small rocks that were pitched to him. He just pretended that he had to hit a ball that was smaller and tougher to see than a real baseball, then held himself to that standard. Later, when he hit real baseballs, it was easy for him since he had already learned to succeed with less at his disposal.
In that same way, putting away 401(k) money and pretending it doesn’t exist can allow you to play the retirement game with self-imposed tough rules. Later, when that money’s there as you hit the “big leagues” (retirement), it will be much easier for you.
Fantastic analogy, and so true. I used to play myself some ball as well, and it’s the same concept with swing practicing with two bats.
Big leagues – retirement! Nice!
My dad convinced me to max out the 401k contribution when I started working my corporate job. Actually, I may remembered this wrong because I went back to check record and I only see max contribution since 2001. In any case, I started contributing since my first real job and my 401k account is doing pretty well. I lost some money in the beginning because I drank their Kool-Aid and put a lot into company stock. Even with that mistake, my 401k is a huge stabilizing factor in my portfolio. I don’t have any company stock in 401k now.
If you don’t see it, you don’t use it.
Heh. Not many people can afford to max out a 401(k), but more power to those who can, and to those who can do so without even noticing the money was “missing” from their cash flow.
Good question! what is up with our sub 5% savings ?
It is true, it is easy to do things if you are used to it. I mean, things that you usually do and your body and mind are accustomed with it. It is also easy to get accustomed on putting some money on your bank account every payday but it’s hard to forget totally forget about that account.
So true! At my old job, I had no 401(k), so I contributed to my own roth….however it was not regular as it was not automatic! Anything that I cannot get to be automatic I have a hard time remembering to do. Like I have been trying to focus on stretching and yoga to stay loose lately…the closest I can come to automating that is setting a reminder in my phone…still doesn’t work very well! Long story short, automate your life as much as you can!
Ha, awesome. Did you know that we actually blink half as much as we normally do when we’re in front of the computer?! My eye doctor told me this when I went in for some eye issues this year. And I totally believe it b/c my eyes only feel dry when I’m staring at the computer screen for hours on end. So thanks for the blink awareness – I needed some extra blinks as I type this. :)
I totally agree about setting up auto savings and 401k contributions. Using a % contribution instead of a dollar amount also makes it super easy for the long run b/c when you get a raise it will automatically start contributing more. great post!
Hmmm, didn’t know that! Why is that you think? Blink. I should probably spend 1 minute resting my eyes every 30 minutes on the computer just to be safe.
Blink, blink haha, nice. Seriously… wake up 10 years later and you are like WOAH! Where did all this $$ come from!
LOL. Nice post. I was wondering where you were taking the blinking analogy.
Sam, how do we calculate savings in this country? I am just curious.
I calculate it by using a complex algorithm called Google!
LOL.
Sam, This analogy is so clever. I wish I had thought of it!!! But I may steal it nevertheless (with credit of course). I loved it!
Go ahead, steal away! There are so many good analogies out there that help describe a situation, point, or story.
Oh there are people out there who don’t save anything they’re not forced to. I have a couple of coworkers who are in that category. They’re reasonably smart IT people, too, but they don’t manage to save a dime beyond the mandatory 6% that goes into their pension automatically.
Maybe they are having a lot of fun and living the high life though? Could be good, even if they have little in the bank! One life to live!
It’s only good if you consider having your stuff repossessed and an ensuing divorce after 25+ years of marriage good. Yup, live for moment!
But he’ll have fun living it up for those 25 years though!
I am a huge fan of automatic savings – I am forced to keep my “real” checking account low so I don’t see myself as being able to splurge too much (I know I have too much when I say, “eh, I got the whole round of McCallans”)!
yeah i’m saving 60% of my income now…I think you’re right that most people save more than 5%. That seems pretty low to me
60% of your income?!? how do you do this?
mind you, I have to pay 40% of my income in taxes ;-)
I’m a college student. I make about $15,000 a year and save about $9,000.
I still live at home and don’t pay rent.
Baller! I’m impressed that you make $15,000 while going to school! I think I made at most $3,500 at most.
Just don’t forget to move out of your parents house within a couple years after graduation!
https://www.financialsamurai.com/2010/08/31/how-to-get-girls-if-you-live-at-home-with-mom-dad/
thx, now I’m just thinking about how many I blinked while reading your post ;-)
i like to automate things in my life so I don’t have to think about it. this is the case with my bill payment, debt re-payment and investment. if you have to think before making such financial moves, chances are that you will think twice and forget about it (or find something way more interesting to buy than paying off your debts ;-) ).
We have always contributed to our 401k since our very first paycheck 20 years ago. However, for awhile, that was our only automatic savings for awhile as we were paying off debt, having kids, buying a home, etc.
Now, I automatically save like a maniac. Actually, not just save, but just budget. I have several Smarty Pig accts for things like taxes, vacation and summer camps. I am loving knowing that I am building those funds without thinking and I won’t get sticker shock when my bills do show up.
Automatic savings and money allocation is the best!
I guess I’m a thinker.
I put money in my 401k. I max out my Roth IRA. I put money in my HSA as well. But none of that is automatic. I carefully decide what stocks to buy in my Roth IRA. I rebalance my 401k when I think there is a good opportunity with a particular fund. I change my HSA contributions when necessary.
Even with your conclusion, I don’t automatically do those things. I’m usually early when I meet up with people, but if I know my friend wont be ready to leave until 15 minutes after our arranged time, then I’ll probably be a little late. When I was in school, I made a decision on if my time was better spent studying or doing something else.
Maybe I need to start making things a bit more automatic.
The money contributions portion is automatic, but the decision on what to buy, sell, and asset allocate shouldn’t be I agree.
I have a tautology. If you save $1,000 a month for 100 months, you WILL have at least $100,000 in savings. Over 10 years, hopefully one’s average income can be around $50-70,000, $1,000 a month should be doable!
Not sure exactly how much I save but it is clearly more than 25% and may be closer to 40%of my salary.
I max out my 401K, Roth IRA and Heath Saving Account (I have a high deductable insurance plan and thus can put about $5,000 into an HSA that deductable from my taxes and gains interest tax free), put money in mutal funds and also agressively pay off my mortgage.
Good stuff man. In 10 years you will have humungo money! Trust me on this. Keep it up!