“I don’t believe in saving money,” comedian Louis CK told Jay Leno in a 2010 interview.
“I think it’s arrogant,” he continued. “It’s like holding in a breath — ‘I’m not letting it out, I worked hard for this.'”
You can probably take CK’s statement with a grain of salt, but the truth is that, according to a 2015 Federal Reserve report, nearly half of Americans wouldn’t be able to cover a $400 emergency. About a third of Americans don’t have a single dollar of retirement savings, discovered GOBankingRates.
Depressing, right? But dismal news about the financial habits of the populace at large isn’t exactly motivating. If you’re having trouble cuing yourself to save your extra cash, try embracing the two often overlooked truths below instead:
1. You can end up with more money than you save
If you put $1 under your mattress (or in your checking account, which is the banking equivalent) every day for a year, you’ll have $365. After two years, $730, and so on.
But if you put that cash somewhere smart, you can end up with more money than you’ve actually set aside. Here are a few examples:
Retirement accounts earn compound interest. Since retirement accounts like the IRA or 401(k) are tax-advantaged investment accounts, they benefit from compound interest: Interest earns interest on itself, helping your money grow exponentially over time. Compound interest works best when you front-load your accounts — that is, when you start saving early.
A 401(k) with an employer match earns money from your employer. A common term for this is “free money.” If your employer offers a match, that means they will match a portion of the money you save, bolstering your savings over the long term.
The stock market has potential for growth. Most experts don’t recommend that the average saver try to “get rich quick” through the stock market, but they do recommend using investments as part of your overall portfolio.
Retirement savings are one way to invest, but if you want to get more involved, there are other avenues to explore: Start by researching low-cost index funds, a conservative approach recommended by Warren Buffett, or by looking into the low-cost online investment platforms known as “robo-advisers.” Stock market returns can never be guaranteed, but your investments have the potential to grow well beyond your mattress money over time.
Even saving in a short-term bond fund or high-yield checking account earns a little interest. CFP Ellen Jordan told Business Insider that she recommends people keep their emergency funds — three to nine months’ of living expenses — in short term bond funds because they’re conservative investments that minimise the risk of losing money, and, unlike with some other investments, you can withdraw your funds instantly.
According to Investopedia, the top short-term bond funds have 10-year annualized returns of 1.7% to 3.6%. If that sounds a little complicated, high-yield savings accounts (like those offered by online banks such as Ally) usually earn about 1% interest. Not much, but better than nothing.
2. You’ll get to spend it
Putting money into savings can feel like losing it. But money you save today is just money you get to spend tomorrow, on things you want more than what you would have bought today.
Money you save for a house or car will eventually result in a house or car. Money you save to have a baby will result in a few months lacking financial stress while you have a newborn. Money saved in your emergency fund will enable you to write a quick check when something goes sideways.
It’s hard to look ahead, but remember: Your money is yours. It doesn’t vanish into the ether when you save it. Whether it’s today or tomorrow, you will get to spend it.
Kathleen Elkins contributed reporting.