Regardless of your income, it can be difficult to build savings. We all know we should be building savings and not just using it for any purpose, but we haven’t really been told how to do that.
Just expecting yourself to automatically build savings is not enough. It sounds like an incredibly do-able strategy for savings, right?
Conventional bits of wisdom like this make it sound incredibly easy to just magically be able to build savings. Unfortunately, it’s not that easy (but it certainly isn’t that hard).
Building (and keeping) savings isn’t a financial tool, it is the result of a well-built, personalized financial tool.
That simplistic expectation of just being able to save means the possibility of failure is high. I know it looks like everyone else may have their act together as far as savings, but believe me, they do not.
That false expectation of savings just being automatic and easy sets you up for failure. And once we have a few “failures” under our belts, we are highly unlikely to try again.
Even if on paper you can’t see any reason you couldn’t be saving $500 a month, start with $50. It doesn’t sound like this is going to result in having any savings at all, right?
But the slower you save money, the slower you UNsave it. This is about learning to trust yourself!
Start small, prove to yourself that you can keep with it for a month or two, then very slowly start to increase the amount you’re saving. Savings doesn’t do any good if it zips right back out of your account, so be gentle, go slow, and really savor your savings account balance!
That doesn’t mean only celebrating $1,000, or six months of expenses, it means every month looking at your savings balance, or what you contributed, and bringing that home as a win. There is a very common, and legitimate concern that “If I see the money in my account, I’ll be tempted to spend it.” Hiding money away from yourself only confirms that you can’t be trusted.
By practicing savoring what you’ve done well rather than what you’ve “failed” at, you’re reinforcing abundance and making your savings naturally stickier.
Yes, even if the money went right back out again, celebrate when money goes into savings.
Very often we just call our savings “savings” or “emergency fund” or “rainy day fund.” But how would you know when to use that money? And how do you know when to leave it where it is?
Not knowing if or when to use savings can lead to a lot of ugly conflict, especially for couples, but some of that can be prevented if you carefully name your savings.
If you were to give your emergency fund a job, what would it be? What is the emotional benefit of your emergency fund? What is it meant to protect you from? Basically…
…how do you know when to use your savings?
If your answer to that question is “If I lose more than 30% of my income,” then name that savings “loss of income” (or similar). Now imagine you have that “loss of income” fund, but you’d like to put in a new deck. Can you use the “loss of income” fund for a new deck? TECHNICALLY, you sure can, but are you likely to? Probably not. Why? Because you named your savings carefully, and once we do that, our brains have a hard time deviating. We like to categorize, sort, and organize things, including dollars!
The more specific a job you give this money, the easier it will be to make a decision on when and how to use savings.
Saving is a strategy and can get fairly complex. I encourage my financial coaching clients to have three kinds of savings.
(I get that that may sound overwhelming, but it doesn’t need to be. If it helps, think about your savings strategy as a kind of ecosystem… every element is connected to the others, and they all have a role to play.)
The purpose of building long-term savings is to smooth out the highs and lows of spending and income over years. However you name it, savings like this is for quickly handling big emergencies like a flooding water heater, or taking advantage of opportunities like a screaming deal on an investment property. Withdrawing from long-term savings typically comes along with a lot of thoughtfulness. Money goes in but rarely comes out.
Don’t think about these two questions too long!
How much should be in this big savings account? (The first answers are usually the correct ones!)
And how would you know when it’s time to use this savings? (Name this big savings after that thing: loss of income, tree falls on house, investment property, illness, etc.)
The purpose of this kind of savings is to protect the long-term savings. This is typically a smaller dollar amount and money moves in and out of these funds quickly.
No matter how great your planning and budgeting is, occasionally something comes out of left field, and this “fly-swatter account” is great for just smacking down that annoying thing without much fuss. (If you have no savings, I recommend starting here).
Commonly there is little emotional investment with using and refilling this kind of savings because that’s its whole purpose!
Same questions again! How much should be in this account? How would you know when to use this account? (flat tire, minor injury or illness, etc.)
These are the savings or funds that come and go as your life changes. Installing that deck, buying a car, extended time off work, getting a tattoo (yes, really), and vacations are all things I’ve seen people set aside money for in these project-based funds.
These project-based savings are typically pretty easy to name, AND you know how much is needed in each. And they’ll pop in and out of existence over time. Typically (but not always), these are the first accounts to be pivoted if something really goes sideways.
How you plan, name, and structure your savings has a lot to do with how successful you are in KEEPING your savings. If all it took to build and keep savings was willpower or feeling stressed out, we’d all have fat savings accounts.
By being intentional and thoughtful with your savings strategy you can grow your savings and build your financial resilience!
Do you find it easy or hard to save money? When did you start saving money? Did you go slow? How well do you do in the savings department these days?