Ok, but that’s more difficult than it seems. The problem with savings is that as a word, as a concept, it’s very vague. Meanwhile, people assign very specific definitions to it and have whole sets of these specific definitions of what constitutes various sorts of “savings.”
Nothing is inherently wrong with having different ideas; in fact, I tend to think it’s pretty great to have variety. The problem really shows up when people are trying to communicate and the definitions they think of when they’re using or hearing the word “savings” don’t match.
One thing that most people tend to agree with just as a matter of course is that saving is good and necessary. There are these ideas floating around that people in their twenties need to be saving for retirement, or they would if they knew what was good for them, or everyone should have X many months of emergency savings. As my roommate said the other day, “They make savings sound like chicken noodle soup, like it’s wholesome and good for you and something to use for a cure. Like, here’s your cure for a sucky life: Savings! It’s like medicine.”
But here’s the deal: not everyone can put away money each month, and even if they could, it may not seem worth it.
So let’s back up from the questions of “how much should I save?” or “in what way should I save or invest?” and start at the beginning.
What is the point of savings?
I would argue that to answer this very personal question, you would also need to consider (at least) two other questions: 1) what is the point of money, and 2) what do you want from and for your life?
Because what is the point of savings? It really depends on what you want to do with it.
Are you saving for emergencies or for some longer term goal? Do you want to pay off loans? Are you saving for retirement?
Working to stop living paycheck to paycheck as soon as possible will require a different focus and mindset than working on saving for college or retirement or a large purchase somewhere down the road. Savings is really useful for achieving all of those goals, but be careful in how you are visualizing “savings.”
If what you want is the stability to stop living paycheck to paycheck and you go into it thinking, “I will be working on savings so that in a few months I’ll be able to start saving for retirement,” well, maybe you are right, but that’s not really lining up with the goal you set out for yourself. Focus on the goal of not living paycheck to paycheck, and set a realistic timeframe with measurable benchmarks. That’ll probably look more like “I will be working on savings so that in three months, I will spend less (even if just by a few dollars) than I bring in.”
The main thing, really, is think about what you want and need, and figure out how to make that happen. Don’t just follow advice because you think it’s the right thing in general. Understand how it will help you, and consider if it is the best advice to be following in this moment, given the particular needs and dreams you are working towards.
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Early access originally posted on July 25 for $5+ patrons; post was made public August 5.