How Big A Nest Egg Should I Lay? 

By: Wilson “Jody” Humber

A Savings Plan For Real People

When I ask people in my seminars, “Do you think saving is wise planning?”, almost everyone answers yes. When I ask, ‘Are you saving something consistently and persistently from each paycheck?’ almost everyone answers no. Most of us know better, but according to biblical wisdom we are living like fools. ‘The wise man saves for the future, but the foolish man spends whatever he gets’ (Prov. 21:20, TLB).

No matter where I go, it seems that people have the same questions about saving What does Scripture say about saving? Isn’t saving a failure to trust God? What should I be saving for? How can I save when I can barely make ends meet now?

What does Scripture say about saving?

An excellent example of saving occurs in Genesis 41 when Joseph interprets Pharaoh’s dream and prophesies seven good years to be followed by seven years of famine. Joseph’s advice to Pharaoh (and us) was to save a part of the income during the good years as a reserve for the lean years or problems to come. Solomon also reminds us of the same principle of saving by observing what God instinctively planted in the ant: “Go to the ant, you sluggard; consider its ways and be wise! It has no commander, no overseer or ruler, yet it stores its provisions in summer [saves] and gathers its food at harvest [so it will survive during the winter]” (Prov. 6:6-8).

In considering our responsibility to our families Paul wrote, “If anyone does not provide for his relatives, and especially for his immediate family, he has denied the faith and is worse than an
unbeliever” (1 Tim. 5:8). The Greek word pronoeo translated “provide” comes from two words: the preposition pro meaning “before, in front of, or prior to” and the root word noeo meaning ” to perceive, think, consider, see, and understand.” Providing for ourselves and our families includes the responsibility to look down the road and save for the “lean years”-circumstances or problems that sooner or later affect us all.

But, just as with any of God’s guidelines for living, there are two dangers in taking a principle to the extreme. When Jesus said, “Do not store up for yourselves treasures on earth, where moth and rust destroy, and where thieves break in and steal” (Mt. 6:19), He wasn’t saying don’t save. Rather, He was warning that continued saving beyond reasonable needs becomes hoarding, which is condemned throughout Scripture. For an excellent case study, read the parable of the rich fool in Lk. 12:16-21. The second danger of saving beyond what is necessary is that we wrongly trust in our savings rather than in God. Proverbs 11:28 reminds us this is a surefire formula for failure: “He who trusts in his riches will fall, but the righteous will thrive like a green leaf.”

Scripture seems to present a balance. We should save some of our income but not store up all our treasures on earth. Proverbs 30:8-9 helps us to remember and maintain that balance: “Give me neither poverty nor riches, but give me only my daily bread. Otherwise, I may have too much and disown you and say, ‘Who is the LORD?’ Or I may become poor and steal, and so dishonor the name of my God.”

Doesn’t saving show a lack of faith on my part?

Shouldn’t I rely on God alone to meet my needs, and trust Him alone to provide for the future? If I save, aren’t I depriving God of the opportunity to meet my needs? Questions like these are very common from those whose chief desire in life is to live in complete faith, trust, and dependence on God. To answer these questions we must distinguish faith from presumption. On one hand, the Bible is clear that walking worthy means putting complete faith and trust in Him alone. On the other hand, the Bible stresses our personal responsibility to exercise wisdom, make good choices and decisions, and demonstrate personal discipline.

Saving is our responsibility out of the blessings God has provided. Failure to save anything at all from our income is both presumption on God and foolishness rather than faith. Remember Prov. 21:20, which reminds us that only a fool saves nothing.

What should I save for, & how much is enough?

The answer can be divided into two parts: short-term savings and long-term savings. Let’s begin with short-term goals. Three common short-term goals are savings for emergencies, for repair and maintenance, and for annual events.

1. Emergency Funds. Everyone should have an emergency fund to provide for the unpredictable expenses that occur in life. What happens when you have a traffic accident and need $500 to cover the deductible on your car insurance? What do you do when your son breaks his arm and $300 of the bill is not covered by insurance? What about when you get a call from across the country that summons you to a close family member’s funeral? You have just two choices. Either save beforehand or use debt and credit when emergencies strike.

Amounts vary from family to family, but a realistic minimum to accumulate for emergencies is $500 to $ 1,000. If you saved only $10 a week using payroll deduction or any pay-yourself plan (explained later), it would not greatly affect your current lifestyle, but it would dramatically alter your response to an emergency when one happens.

Credit cards are not a suitable alternative for handling emergencies. First, borrowed principle must be repaid, and this reduces your spendable future income. Second, you have to pay interest so you have even less spendable income and the emergencies cost you more.

2. Repairs and Maintenance. Everything on this earth will eventually need repair, maintenance, or replacement.

How much you need to save for repair and maintenance depends on your circumstances, but a realistic minimum would be at least enough to cover probable outgo for health, homes, and transportation. If you have medical insurance, it would be wise to save at least twice the deductible on the policy. If you have a car, a conservative guideline would suggest that you save at least your deductible on collision insurance plus probable cost of repairs over the car’s mechanical life. Homes are the largest investment most of us make, and over time they too require work that can be quite expensive. A conservative guideline would be to accumulate one to two percent of your home’s fair market value.

3. Annual Events. Every year the same annual events occur: birthdays, Christmas, anniversaries, school clothes, and vacations. But very few of us look ahead and plan for them. We procrastinate until the last possible minute so we end up buying now and paying later.

Take the time to plan for the events in your life. Make a list of the people and the various occasions you buy for. In our family, we have a total of 35 extra expenses each year, not counting another 24 people we remember on special occasions. Since we plan in advance, we have chosen to set a total dollar limit of $1,500 on these annual events. We save $30 a week so we can pay cash rather than charge these expenses.

What long-term goals should I be saving for?

Four common goals for long-term savings are big-ticket items, income replacement, education, and retirement.

Big-Ticket Items. The most common big ticket items are vehicles, down payment on homes, and home furnishings. Again we have the choice of buy now pay later or save now and buy later.

To illustrate the wisdom of savings, let’s compare buying a new vehicle for $20,000, which I finance for six years at 10% simple interest, with saving and paying cash. My car payments would be $382.68/month for 72 months, which is $20,000 principle plus $7,553 interest. If I saved $231.46 per month over 72 months and earned 6% interest, at the end of six years I would have $20,000, which is $16,665 in payments plus $3,335 in interest earned. The difference in interest paid ($7,553) and earned ($3,335) is $10,888, which is 54 percent of the price of the car! Saving and buying in cash is always cheaper.

Income Replacement. If a major illness, accident, layoff, or pay cut hit you tomorrow, how long could you survive? A recent survey of professionals in Medical Economics found the average professional had less than two weeks’ income in savings. A minimum long-term savings goal is to accumulate three to six months’ living expenses in an interest-earning account. This will buffer the shock of having your income reduced or interrupted.

Education and Retirement. Education for yourself and/or your children as well as saving for your eventual retirement are valid, long-term savings goals. Since the time line for these goals may be 10 to 30 years or more down the road for some of us, we can cross from saving to the art and science of investing, which is a separate topic. When I use the word savings, I mean the guaranteed return of a dollar plus the guaranteed rate of interest over a specific time period. Investments, unlike guaranteed savings, have no certain future value or future income. Before setting goals, do your homework and learn about investing to reduce your risk. Don’t jump into a plan that sounds too good to be true. Lack of information plus lack of patience plus greed is a guaranteed formula for failure. Investigate before you invest, because you can never make up a loss of capital.

How can I save for the future when I can barely make ends meet now?

You don’t have to earn big money to accomplish your goals if you start now and are persistent and realistic. It took us over 20 years of saving-increasing the amount each year that we saved-to get to where we had savings to cover all the items mentioned previously. We started small and as we reached one goal, we moved to another one. What counts is your attitude and the direction you are moving, not the amount you are saving at first. Resolve to start now. Trust God for guidance, provision, and power as you move forward.

Too many people live first and save later. When that is the case, almost never is there anything left to give or save. That is why so many say saving is impossible, because just as they accumulate
anything, along comes a problem that zeros out their savings. The problem here is dual: failure to plan realistically and failure to save first and live second. When you give and save first, then live, you are in balance. You must make savings a priority and commit to paying yourself something from your income or you will never save. The minute you begin saving, you harness the awesome power of compound interest working for, rather than against you. Start saving now to eliminate problems, stress, and pressure later on.

Wilson “Jody” Humber, CFP, Ph.D., is the president of Humber & Company, a tax, investment, and estate consulting firm in the retirement community of sun City West, Arizona. Jody is the author of four books: Dollars & Sense (NavPress), Saving the Best for Last, Buying Insurance, and The Financially Challenged (Moody).