It’s the first week of October 2012, which means it’s time to write another monthly investing report.
(Note to new readers: Will and I are dedicating 2012 to living on his income while investing 100 percent of mine. You can read the challenge here.)
Unfortunately, there’s not much to say. “Um, I didn’t spend money last month.” Great story! Tell it again!
I’m saving for …. something, but I’m not sure what. Probably another rental property.
And that leads to an interesting concept … “saving for something, but I’m not sure what.” That notion rocks conventional wisdom.
Financial experts love to talk about saving for ultra-specific goals. Standard advice says you should stash away 3-6 months of income in case of a dire situation, like a job loss. After that, conventional wisdom says, you should save for specific things: your next car, your trip to Rome, your Lasik eye surgery.
That’s never really been my style, though. I save, even though I have no idea why. I’m clueless about how I’m planning to spend the money. There’s no psychological “earmark” on that cash.
The result is that I’ll occasionally be at dinner and someone will say something — anything! — ranging from “Let’s go to the Caribbean!” to “Hey, do you want to buy a $21,000 house?” Without batting an eyelid, I answer with a resounding yes.
I guess I save so that I can be spontaneous. I like flexibility and options. Earmarking my savings makes me feel confined.
Most experts, though, will say that this is a horrible plan. With no mental earmark on that money, won’t I run out of steam? Won’t I blow my cash on the first shiny object I see?
Maybe. Suggest that I travel anywhere, and I’ll probably say yes. But that’s because travel is one of my top priorities. And I’m a firm believer in aligning your spending with your values.
Alternately, isn’t there a risk that I’m not saving enough? What if my car, my refrigerator and my washing machine all need to be replaced in the same week, and I don’t have the cash on hand?
Hmm. Yes, that could be a problem. But there are ways around it. I could buy a used $40 mini-fridge. I could take my clothes to the laundromat, just as I did throughout college. Creativity shines when money is scarce.
Don’t get me wrong; I’m not saying that saving “without a cause” is better (or worse) than earmarking funds for specific purposes. I’m simply noting that there is no single way to execute personal finance principals.
Some people are ONLY motivated to save for specific reasons. Some — like me — just enjoy watching our balances climb higher while we dream of possibilities. And many people are somewhere in the middle.
In the end, the best tactic is the one that works for you.
(P.S. As a side note, my 2012 Investing Challenge definitely makes me feel confined, even though I can apply my savings to anything expense under the business/investing category — growing this website, buying rentals, etc. I’m looking forward to 2013, when I can start spending my money on other activities, like international travel.)