The Art of Saving (Money)

March 13, 2023

Can I just tell you how much I adore questions from clients? One question I was very recently asked is "how much do you recommend people save?" She wanted to know if there is a percentage or dollar amount per month that I tell clients to save.

The short answer is no, I do not.

For one, because I'm not in the business of telling people what to do.

I'm in the business of helping clients see their situation more accurately and helping them make a plan to achieve their goals. It's so fun!

But about savings:

I see too many people set their savings goal, and plan/hope to simply live on the rest. This was my plan for most of my 20s. The Richest Man in Babylon is one of my favorite finance books, and the principle of “pay yourself first” (via savings) really stuck with me. 

So I tried to do that. And many of my clients do too.

They save $300/mo “no matter what.” Or they save 10%, “no matter what.”

A month or two goes by and they feel like they’ve turned a financial corner and are finally able to save and live within their means…until an “emergency” arises.

And when the unexpected expense arises, they dip into savings. 

Note: for the sake of this article, we will not talk about the impact of credit cards on this whole situation, but these are a major culprit for the financial stress in your life. More on that in a future article! For the scope of this article, we’re going to pretend like you don’t use credit cards to cover emergencies.

The result is that your savings goes up and then down, down some more, then up a little bit, then down some more. Basically, money saved doesn’t stay saved. And you can end up demoralized, or worse.

Remember what 2020 was like, as jobs were being cut and uncertainty was really high? Or at the end of last year when tech jobs were being slashed?

Did you want savings then? If so, you should want savings now, since it's before the rain comes that it's wise to build the ark.

If you're not sure you find savings a motivating concept, it's a great idea to imagine some worst case scenarios that could happen to your family or household and let that motivate you to reconsider.

And if/when you’re serious about figuring out how to be a saver, here are the two critical questions to ask:

1. How much can I afford to save?

Put another way: “What is causing me to dip into my savings?” or “What money am I saving that I actually need in my monthly life?”

Step 1

Figure out how much you can afford to save right now. You do this by getting very realistic about how much life costs.

You make sure to include the occasional and annual and fun things that are currently happening but not being recognized in your monthly spending plan.  This is preempting emergencies and solves for a great majority of what’s interrupting your savings. 

Step 2

Then you use a budget to proactively plan your actual dollars. A budget tool is a critical companion to the spreadsheet we all make for our hypothetical money plan, and is what makes that hypothetical money plan actually work in your real life.

You use that budget instead of your checking account balance to inform your spending. Before you spend, you see how much money you have set aside for that thing, and if you don’t have enough, you decide where you will take it from (besides savings).

2. What am I saving for?

Saving money is all well and good, but for spenders, it's critical to know what you're saving for.

And to choose how much you want in there, by when. Otherwise, it's easy to dip in to an unlabeled pot of money and not think through what it's going to affect.

3-6 months living expenses is a widely accepted recommendation for a savings target. What is that for your household? Since you've done the work to fully acknowledge your cost of living, this will be easy to figure.

If it costs your household $9,200/to live (including the annual and occasional things you've previously ignored), $27,600 is a great first goal for your emergency fund. Once you hit that, you may want to map out how long it will take you to save an additional $9,200 to bring your emergency fund to 4 months.

Think of all the things this could help you handle with less stress:

  • Job loss
  • House repairs
  • Car repairs/unexpected car replacement
  • An unexpected opportunity that requires some cash to make possible (like a mission trip, etc)
  • Unforeseen medical costs 
  • Emergency family expenses (attending family funerals, etc.)

Not that an emergency fund is going to be able to cover every possible scenario in full, but something is sure better than nothing!

Being able to put food on the table and keep your household humming along, or have some money set aside for a true emergency you couldn’t have seen coming, is an absolute gift to yourself and your family.

Time and time again, I've seen it be really enlightening for clients to see why they are not able to save money each month. Or see why it's so much less than they think it should be. Or why they can't keep a healthy savings account for the life of them.

And time and time again, I've seen people be able to do amazing things with their financial goals, including savings, when they answer these 2 two questions honestly.

If you're wondering what's possible for you, your savings, and your financial life, send me a quick message—I'd love to talk with you.

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