Why Do You Save Money: for Goals or Flexibility?

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It’s the first week of October 2012, which means it’s time to write another monthly investing report.

How Do You Save Money

(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.




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33 Responses to “Why Do You Save Money: for Goals or Flexibility?”

  1. Lance @ Money Life and More
    02. Oct, 2012 at 10:35 pm #

    I don’t really have any set in stone goals either. I have some ideas but I haven’t decided what to do after we pay off my girlfriend’s student loans after we get married.

  2. Cherleen @ My Personal Finance Journey
    03. Oct, 2012 at 3:00 am #

    I must admit that I have several accounts, and each account is kept for a specific goal — retirement, children’s college education, emergency savings, down payment for the next car, down payment for the new house, birthdays, Christmas budget, travel/vacation, purchase for next furniture/appliance, etc. And I prefer it this way so that I can see how far or near I am for each goal.

  3. Soso@SafeInvesting
    03. Oct, 2012 at 8:28 am #

    The last time I saved money without any set goal, I spent it on stuff that’s not high on my priority list. I then decided to just pay up my rental units so I have some goal. And against my beliefs, I am now paying up my mortgage and have labeled all my savings with a specific goal. Like retirement, holiday, car, etc. I haven’t always been like this. But this is what works for me. Having said that, we never plan our holidays and always overspend on what we budgeted for them.

    • Afford Anything
      04. Oct, 2012 at 10:46 am #

      @Soso — I like your story because you’ve tried a variety of techniques, figured out what works for you and what doesn’t, and adjusted based on results. That’s a perfect way to manage money. :-)

  4. Little House
    03. Oct, 2012 at 9:43 am #

    I have to set goals, or I don’t save very much. Heck, even with my goals I’m not doing so great. But my excuse is my income has dipped and it’s a struggle keeping up with just the expenses. (excuses, excuses!) Hopefully, that will all turn around by the end of this year. Then, I’ll be back on track to saving towards my “goals.”

  5. Anne @ Unique Gifter
    03. Oct, 2012 at 10:21 am #

    I’m definitely in the “somewhere in the middle” category. I like goals, but not at the expense of flexibility. I’m willing to adjust goals to achieve other ends.

  6. Curtis
    03. Oct, 2012 at 2:45 pm #

    I save because my hobby is counting money.

  7. krantcents
    03. Oct, 2012 at 5:25 pm #

    I save for goals like retirement savings and a home. I also save to just have choices. NO savings means no choice, but to borrow.

  8. Jamie
    03. Oct, 2012 at 5:50 pm #

    I save for both I guess. I want to have flexibility, but I think flexibility is also a goal to have. I do not want to worry about running out of money in retirement.

    • Afford Anything
      04. Oct, 2012 at 10:41 am #

      @Jamie — Running out of money in retirement is one of my worst fears. When I’m young, I can work and adapt. When I’m older and my body/energy levels have slowed down, I’ll have fewer options and so I’ll need more money.

  9. Kathleen @ Frugal Portland
    03. Oct, 2012 at 7:20 pm #

    I think it’s just an indication that you’re aware that the universe hasn’t determined where you’ll be spending your money, but you know that you can make more decisions with money than without. That’s a good enough target!

  10. jlcollinsnh
    03. Oct, 2012 at 8:45 pm #

    You and I are, I think, on the same page here AA.

    I’ve always saved aggressively and what I was buying was freedom. Freedom to say ‘Yes!’ to a trip or an investment. Freedom to say ‘No!’ when it needed to be said. But those are just the details.

    Freedom is now, and always has been, my goal. Nothing money can buy has more value.

  11. Adam Hathaway
    03. Oct, 2012 at 9:22 pm #

    I think you are in the minority when it comes to not having goals but still making it. Then again I think that you are only in a minority when it comes to the general population. When it comes to your peers in personal finance I am sure you find it is probably closer to 50/50.

    • Afford Anything
      04. Oct, 2012 at 10:40 am #

      @Adam — The average savings rate in the U.S. is around 5 percent, but I have no idea if that’s money people are saving for specific reasons or for general purposes. The more important matter, though, is finding your motivation to save. Mine is freedom; that works for me. For others, a specific goal like replacing a car is the motivating trigger.

  12. 30kto30million
    03. Oct, 2012 at 10:38 pm #

    Cool post.. I have been saving recently with no solid goal and it is/was getting to me.. your article put things in perspective.. the freedom that saving gives is nice to have..

  13. Christa
    04. Oct, 2012 at 1:55 pm #

    I also don’t earmark my savings. We use it when absolutely necessary. I will start saving for the birth of our next child, though. Baby bills, unlike their cute name implies, are not tiny!

  14. Barbara Friedberg
    04. Oct, 2012 at 9:40 pm #

    I’ve always saved. Rarely do I consider what I’m saving for (except retirement). I like to have a cushion for travel, emergencies, and other expenses/wants that come up.

  15. Jackie
    04. Oct, 2012 at 9:52 pm #

    I save both for specific goals and just to be saving. Sometimes I also save with several goals in mind, and then just pick whichever I’m most interested in at the moment when it comes time to spend.

  16. Emily @ evolvingPF
    05. Oct, 2012 at 9:25 am #

    I have a lot of specific goals that I’m saving for, but I’ve observed that as the balances have grown they motivate me less. I am thinking about pooling some of the money now for flexibility as you discussed. I am no longer temped to blow money before it gets to savings so maybe I’m outgrowing the super-specific goals.

  17. Ornella
    05. Oct, 2012 at 1:38 pm #

    The underlining point of those financial advice is for flexibility. And when you have specific goals labeled your mind adjusts toward mental accounting (which can work for you and against you). When making it work for you, you have a path or a direction.

    I think spontaneous is a type of goal–lifestyle goal. And part of setting goals is to align with the type of lifestyle you would like to create for yourself. Life doesn’t need to be rigid. Enjoy it and be spontaneous!

  18. NoTrustFund
    05. Oct, 2012 at 2:49 pm #

    While we have a few set goals we’re saving for, namely retirement and kids’ college accounts, most of our savings is for flexibility and freedom. We’re also working to pay off our mortgage, which I guess is a pretty specific goal, but we want to pay off our mortgage to give us more flexibility and freedom.

  19. I set goals for every savings account I have. Rarely do I save money without any goal in mind because either I will spend it on not-really-important stuff or there is not sufficient amount saved.

  20. Milton
    08. Oct, 2012 at 11:20 am #

    I used to save for flexibility. Then I learned that if I set goals and achieve them, I’ll have a lot more flexibility. Or to put it another way, flexibility IS the goal. I want options. Investing my money and building wealth is the way to get there.

  21. Jonathan
    08. Oct, 2012 at 7:01 pm #

    We don’t set savings goals because to us saving has become the default. We don’t spend frivolously, and we save a lot. As a result, when needs, wants, impulses, or investment opportunities arise, we generally have the money to take advantage. Water heater breaks? No sweat. We’re invited to go to Hawaii? We carefully consider whether the joy of the trip will be worth the cost, but the ability to “afford” the trip need not be discussed. Decide to spend the weekend away on short notice? Not a problem. Short-notice opportunity to purchase an interest in a profitable commercial property? Ran the numbers, green-lighted it, sent in the money.

    We are very goal-oriented, but not in terms of spending. We have savings and income goals (especially investment income) and as we build up our free cash flow, we set higher goals.

  22. nicoleandmaggie
    09. Oct, 2012 at 8:31 pm #

    We also save without goals, but goals come to us as well. Like a year off from work to pursue an opportunity, or DH being able to quit the job he hates without us having to move. Flexibility is awesome.

  23. Parvinder
    10. Oct, 2012 at 9:56 am #

    I save money to invest it wisely. I know that only saving doesn’t take you to nowhere. So I try to save as much as possible to invest it to get financial freedom.

  24. AverageJoe
    11. Oct, 2012 at 11:07 am #

    If I had been your advisor (back when I did that crazy stuff), I’d tell you that you are the exception, but run with it. (You already knew you were the general exception, didn’t you?)

    The average person I met with (and it numbered in the hundreds) couldn’t save a dime until they put a price tag on their goals (they were too busy putting price tags on all their short term wants). But, as you say, it’s “personal” financial planning that matters, and sticking with your values and flexing your best muscles makes a plan work. I would have told you to build a big “independence” fund. What does independence fund mean? The independence to do whatever the heck you wanted with it. Because it’s an independence fund, the fun would have been in how exactly to invest that until you wanted access. Obviously, because you like independence spontaneously, going with long term stuff (unless your goal ends up being long-term-stuff) is silly.

  25. Pam
    13. Oct, 2012 at 11:33 pm #

    This article reminded me of something that my uncle once asked me – “What is the point of saving your money if you have nothing to buy later on?”

    I now realize that you need to have a goal as to what you will buy once you have the money and for me it is always something that will make me money in the end.

    Pam

    • Afford Anything
      16. Oct, 2012 at 4:06 pm #

      @Pam – I love the goal of “your money making money.” You get to remove yourself (and your time) from the money-making equation … and delegate money-making to your resources.

  26. Brick By Brick Investing | Marvin
    21. Oct, 2012 at 10:47 am #

    Generally speaking I only save for items that I know I am going to want in the future. I try to never make impulse purchases. I take my monthly cash flow and invest it generating more monthly income. I also keep about 15-25% of my portfolio in cash just in case an unsuspected investment opportunity comes along.

  27. MakintheBacon
    26. Oct, 2012 at 10:23 am #

    I save for goals and flexibility mainly. I’m also one of those people who enjoys seeing my bank account grow. Another part of me also saves because you never know what could happen in the future. Being unemployed briefly and only work part time for a couple of years made me realize how important it is to set aside some money.

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