Saving money is a sign of maturity. You know that delayed gratification and full on adulting that comes through when you tell yourself no – not right, now. It can wait, kind of a thing.
We’re diving into HOW to save, WHAT you might want to save for, WHY saving is critical to your financial success for yourself personally or for your business, and WHERE to save.
But first, a story.
It’s Spring of 2020, remember that time?
We were all under quarantine orders.
The closets were cleaned out.
Restaurants were closed for dining.
And working from home was in full force for everyone.
My husband invited me out on a much needed surprise date night. Where we’d go, I had no idea as nearly nothing was open – but even a drive was a welcome idea to being stuck at home trying to navigate working, facilitating elementary school, and figuring out what was happening in the world.
He walked me out to the garage where I thought my suspicions of an evening drive date night were correct.
But I was wrong. That man of mine had spent a few hours in the garage setting it up for an indoor date night.
- Poker table turned into a restaurant table.
- Christmas lights strung across the garage doubling as mood lighting.
- TV screen tuned into the ‘fireplace’ channel.
- Bloody Mary’s for two.
- Chipotle take out that tasted better than a Michelin meal.
- And a thoughtful card speaking my love language; words of appreciation.
In that card my entrepreneur husband shared that although the pandemic brought a lot of unknowns for the world, and his business – he didn’t feel the stress and anxiety that so many other business owners were feeling in those moments because he had followed the same principles that we had in our personal finances for his business – he had a healthy emergency savings fund for his business that allowed for the steep cutoff of events and filming (he’s in video media marketing) to still be okay for a lengthy period of time. And he attributed that savings account to me.
I’ll spare you the details of what happened next. This is not that kind of blog.
Saving money isn’t always sexy, until it is.
Why should you save? Because you grew up being told to do so? Because it sounds like a wise thing to do?
Try this on for size.
- Saving money provides a sense of security.
- Saving money for a larger purchase allows you to avoid rush decisions and intentionally spend.
- Saving money breeds contentment for what you have now, while making plans for your future.
Let’s dive a bit deeper into each of those.
Saving money provides a sense of security.
Some people describe having an emergency fund or rainy day savings as a security blanket. What even is a security blanket? I envision the burrito style wraps we did to our babies to keep them all tucked in as newborns. If that is in fact a security blanket; most of the time when done correctly (and that took practice) it did in fact keep those babes secure and gave the feeling of being back in the womb all snug as a bug.
I like to say that a rainy day fund or emergency savings is like a warm hug. Where did I get that from? Frozen? I’m such a Mom. I digress, when things are rough outside, a warm hug can help you weather the storm of the moment. It feels good. It’s comforting. There’s this audible ‘ahhhh’ that happens.
Whether you like the idea of the baby in a blanket or an Olaf-style hug, saving money can absolutely be a sense of security.
- Security that you’re going to be alright if your car needs an unexpected repair.
- Security that if your pet needed emergency care you would have the ability to cover the expense.
- Security that if you lost your job, you’d have some time to pull yourself together and get back out there looking for the right role.
Saving money for a larger purchase allows you to avoid rush decisions and intentionally spend.
Going on vacation is so much sweeter when it’s paid for in advance, and the purchases you make on said vacation are choices of intentionality versus ‘screw it, we’ll figure it out later.’
Taking several months or even years to save up for a replacement car gives you time to determine how much you want to spend, the ideal features, leisurely time to shop for the best deal and a heckuva lot of appreciation for that ride.
Savings means that you can intentionally spend. That’s right – you should be spending some of your savings. Now, that doesn’t mean that you should spend that emergency fund on a vacation. But it does mean that when an emergency comes up and you find out that your water heater that was supposed to have a lifetime of 20 years crapped out at 15, you can intentionally spend on a replacement.
Saving money breeds contentment for what you have now, while making plans for your future.
When you allow yourself to purchase what you want, when you want – you don’t get to practice much contentment for what you have right now.
I get it. You’d really like new countertops for the home that you recently purchased. Whomever picked these out clearly didn’t have any taste, or apparently a sponge to keep the Kool-Aid from staining the counters. But wait a minute; you just purchased your first home. Let’s bask in the contentment of that for a few months while you save up for a bit to replace those countertops instead of reaching for a credit card and adding it to a pile that may take years to pay down. In the meantime, some updated decor, and a strategically placed tea towel can help you make do.
During that time, you may find a more pressing goal to tackle – like the backyard that’s aching for a swingset and patio furniture…and hold off on those new countertops until next year; after all you’re now really fond of that tea towel placement.
When you get to the point that you’re saving for retirement, you have to practice a bit of contentment for what you currently have – while you plan for your future self. Your future self still likes to do the same things your younger self does, and who are you at your present age to strip her from those opportunities? Send that old gal on the vacations she wants. See her being outrageously generous to those around her, and saying yes to outings and lunch dates and all the mani/pedi’s that she can handle. Being ‘okay’ with where you are now will allow you to spend more freely on your future self.
I hear downright fear in the voice of so many between 55-60 year olds that are knocking on retirement’s door anxious to get caught up on retirement savings as they see their parents, older siblings and friends live on menial fixed incomes that have taken their lifestyles down several steps or forced them to work far longer than they’d like.
What should you save for? Good question. Short answer…whatever you want to. Here are a few traditional staples from a personal finance viewpoint.
Saving Money for Emergencies
Having an emergency fund, or rainy day fund is planning for the inevitable. Things happen. Stuff breaks. Jobs don’t last forever. Emergency funds are meant to help cover you when the unexpected happens and you need a bridge to get you from point A to point B.
The traditional amount to save for? 3-6 months of expenses. That amount often lands in the $20k range for most of my clients, and happens to be the amount of our personal emergency fund as well. To start with I recommend 10% of that ‘ideal’ amount as a starter emergency fund – not enough to cover all the things, but at least keep you protected from the next thing that may get in the way of your progress.
Saving Money for a House Down Payment
If owning a home is important to you, or you recognize the value in investing in real property, having a savings fund for closing costs and a down payment is key. Typically this would happen after your debt is paid off – and you’d put as much down as possible to build quick equity, and avoid unnecessary fees.
Saving Money for Retirement
Ah yes, retirement. You’re no stranger to the understanding that the government is not going to see you through all of the cruise trips on your bucket list, in addition to the uptick in likely medical care that you’ll need and doting on those future grandchildren in your life. 15% of your income saving for your future is your goal – maybe more if you’re “behind” on this planning.
Saving Money for Kids’ College
If having your kids attend college is important to you, and you don’t want them to shoulder all of the expense, saving for this expense is on the docket. Rule of thumb is saving up to 10% of your income towards kids’ college funds (not each kid – but THE kids) and only after you’re feeding your retirement fund with 15% of your overall income… You have to put your oxygen mask on first.
Saving Money for Vacation
Yes, please! If you have travel of any variety on your mind – even if it’s weekend trips to the coast or a staycation hitting up your local amusement park – these are out of the norm, and should be planned for. Consider what you’d like to spend on travel/vacations in the coming year. Divide by 12 and budget that amount monthly to transfer into vacation savings. This makes taking vacation SO much more enjoyable when it’s paid for in advance.
Do you need a new fridge in the next few years? Is your roof on its last leg? Is your car holding on for its dear life? If you KNOW that something will need to be replaced – it’s hard to call it an emergency, rather it’s just a lack of poor planning. So, become a good planner! Determine what you’ll need, the amount, and back your math up into monthly savings “payments” to cover your costs.
Saving for Annual Expenses
Annual, bi-annual or even quarterly expenses can sneak up on you and ‘surprise’ your budget and throw you off course. Don’t let it. Similar to the ways that we’re calculating these other plans – figure out what you pay for on those alternative occasions and fit it into a monthly ‘payment’ into an “annual expenses” or “irregular” savings account. We have things like, camping membership dues, gym membership, ski passes, and insurance payments wrapped up into this account. I have it broken down into a monthly amount and have an auto transfer into our savings account each month. When the time comes to pay those bills, I just transfer back into our checking account.
Saving for a Wedding
Perhaps walking down the aisle is in the near future for yourself or a child and you’re covering part or all of those expenses. Let’s get to saving – these parties can be expensive! Similar to a ‘replacement’ fund you’d determine your budget, figure out your timeline and then back up your plan into a monthly goal amount.
Saving for a Holiday
Surprise! The holidays come once a year; and Christmas especially tends to be a more expensive one. Consider how much you spend on gifts, decor, extra food, wrapping, replacement lights, etc. for the holidays – then add in any other holidays you buy for on a regular basis; Easter baskets, Valentine flowers, Halloween costumes, etc. and figure out that total. Then divide by either 12, if you have a year – or by the number of months you have until December.
Home or auto maintenance doesn’t typically crop up monthly; so a savings account can be a great spot to hold onto funds for regular maintenance. Think oil changes, tires, or other known auto maintenance. Consider yard upkeep, winterization needs, replacement air filters, or small DIY projects for your home.
From a small business perspective you’d likely want to consider equipment needs, educational opportunities, taxes and of course an emergency fund to cover those ebbs and flows of business.
Okay, you have ideas now for what you’d like to save for. Next up – how to make this all happen.
Most of the ‘what’ to save for came with a bit more detail on my favorite HOW to method – a savings fund. Sort of like “pretending” that you have a bill in that amount and transferring it over to that envelope-ish savings account to get out of your way, out of sight – and be ready for you when you need it.
I’ve seen others ‘fill up’ one savings fund until it’s full and then move to ‘fill up’ another one right after – either method works just fine, depending on preference.
Percentage Based Savings
Some folks like to determine their goal savings amount as a percentage of their income, and then fit their priorities into that percentage based amount – or rotate goals based on season or timing.
Okay, if you aren’t budgeting yet – why not? This simple plan for your money helps you to prioritize and tackle your goals. Your savings should be a part of that. Some of these funds will absolutely be spent, sooner rather than later – this is just a more intentional way of addressing it.
Where should you put these stacks of cash?
Envelope or Safe
You could actually just squirrel these funds away in aan envelope tucked away in a safe spot. That is, if you trust yourself to leave it be – but you’ll miss out on any type of interest accruing, even if minimal.
Credit Union or Bank
Many credit unions have low or no cost options for savings accounts, and it’s easy to set up an automatic transfer, or you can manually transfer if you may need to make adjustments monthly.
Banks tend to have more ‘rules’ around their savings accounts and potential fees, but the same ease of transfer.
Ally is a favorite bank that I recommend and several clients utilize. Ally has a higher yield savings percentage and allows for one savings account to have several ‘buckets’ underneath it to track goals and compartmentalize. Ally.com
What are your savings goals?
I’d love to hear what savings funds you may start funding, where you’re saving and how you tackle savings best.
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