19 March 21
Reading time: 7 minutes
What saving makes the most difference? Turns out some saving is not saving at all!
The most important saving is money put aside that actually improves your financial situation – now and in the future. It pumps up your financial security and independence. When you’ve got this sorted, you’ll have far fewer worries.
Let’s look at some things masquerading as saving that are not, and zero-in on what matters most.
The idea of ‘spending to save’ (or spaving), is all around us. We’re not talking about real bargains on things you plan to spend money on. It’s more those deals that are aimed at getting us to drop money and not miss out.
For instance, I just had an offer come into my inbox to save $8 – as long as I spend at least $60 by Monday, 11.59pm. Time’s running out!
But if these deals are just getting us to spend more on things we hadn’t planned on, there is no saving – nothing being set aside for anything. True saving is stashing cash for something good.
Spending less can certainly be a good thing. But the whole ‘avocado on toast’ uproar – where it was suggested that Millennials will never save house deposits because they splash out in cafés on the weekend – is laughable. You may as well just keep your spending to what makes you happiest and not feel deprived.
Saving $10 dollars just once won’t do much. It needs to be little and often, and more savings can be found in looking at how we rent or what we drive. For some of us, being overly frugal just causes splurges to happen at other times. Those small savings end up absorbed in our cash flow and then spent on a night out a few days later.
So sure, we may stretch our dollars further by living frugally, but unless we’re actually putting that money away in a separate account and investing it, there’s no getting ahead.
Saving up for things ahead of time should never go out of style. It’s still so much better to put money aside for upcoming purchases or for an emergency – it keeps us from racking up debt.
But the short-term stuff is still not the true saving that will matter in time. We save a bit up and then use it, rinse and repeat, but this won’t truly be getting us ahead.
The saving we’re after is what truly moves us forward financially:
These kinds of savings either reduce your debt, add to your assets or accomplish a larger goal like buying a home. They’re the savings that will increase your net worth meaningfully.
Shannon Lee Simmons, author of Worry-Free Money, in fact, calls this “meaningful savings”.
“Meaningful Savings has the job of improving your overall financial wellbeing – debt repayment, retirement savings, saving up to buy [property],” she explains.
Some things that will help increase your real savings are:
To answer this question, you could jot down a list, or you could turn to our very own budgeting tool.
By creating a category for meaningful savings, you can chart how much of your incomings you have flowing towards real savings. You can even create another budget just to geek out and play with.
You should include:
At the moment, the budgeting tool is telling me that my meaningful savings seems to be sitting at 17%. Is that good? Bad? Our situations and lives are all different. But the point here is – is there anything we can tweak to push that even higher?
Going forward, if you have any chance to increase your meaningful savings, jump at it.
And wherever possible, automate your meaningful savings each time you are paid, so it is ‘out of sight, out of mind’, growing in the bank or in investments such as shares. Thanks to compound interest, you’ll be surprised at how quickly it can snowball.
This is the sort of saving that matters most, and anything we can do to increase it dials up our wellbeing, security and independence that much quicker.