Choosing to Save Money

Choosing to save money means you have a reason to delay spending, and that you have chosen savings goals that meet your aspirations for the future.

In the words of the great philosopher Geddy Lee from the band Rush, “If you choose not to decide, you still have made a choice.”  Living for today means living in the moment, but it does not mean we do not need to make plans for the future.  We all have aspirations, dreams, goals for our lives.  If we want to have the resources we will need to achieve our goals, it means we have to defer consumption today.  We have to save money we earn today for use tomorrow.  If we make no choice to save, then we have chosen to ignore our larger, longer-term life goals.

A basic knowledge of capitalism, finance, financial markets, and business is actually important.  If you don’t have a basic working knowledge of these subjects, then you will have difficulty being an investor. If you plan to save money for more than five years, then you should first understand these subjects.

Even if our future is only to maintain an army of synthetics (robots) to do our manual labor, we are all still in the same economic boat. Please help row. Humans have a basic need to produce and contribute. I don’t think anyone chooses to live under a bridge.  Make your contribution count, no matter what it is. Know what you do best, and do it in a way that fits within today’s economy.  Not everyone needs to be a CEO with a golden parachute to succeed. It just means making a contribution that leaves our world a better place since you got here.

Money cannot buy happiness. Sort of.  Studies like the one from the Marist Institute for Public Opinion have shown it buys a lot of happiness to a point.  That study says the income threshold is around $50K a year. Another from the Center for Health and Well-being, Princeton University, says it is around $75K.  Let’s combine the two and say that the “tipping point” for money-happiness is $50K, and the “optimal upper limit” is $75K. An increase in income to the $50K point will provide a substantial increase in happiness, then incrementally so until its benefit maxes out at around $75K.  Above that, money has far less of an incremental effect on happiness. Of course, these are generalities, and these figures will vary depending on where you live, not to mention differences in your expectations for a given standard of living. You get the general idea. What does that have to do with saving? If you want to achieve your goals, you probably prefer not to be miserable while doing it.  We all want a good quality of life now, yet we also want to defer some of our material wants to meet our goals.  In the end, we have to balance our current happiness with deferred happiness tomorrow.  This thought exercise is to help you decide that, if you earn $90K a year, saving $15-20K a year will not make much difference in your happiness.

It is difficult to choose savings goals.  It is harder than it sounds. The longer the period, like saving enough for retirement, the more uncertainty and risk there is to achieving your goal.

What is your money personality? Depending on which authority you listen to, there are any number of personality types. This article from psychonomics.com has a good summary of a few. Kathleen Gurney of the Financial Psychology Corporation lists them as Safety Players, Entrepreneurs, Optimists, Hunters, Achievers, Perfectionists, Producers, High Rollers, and Money Masters. Marilyn MacGruder Barnwell of the MacGruder Agency, Inc. uses Passive and Active. That does not mean active versus passive investing. It means that for Passives, their wealth was obtained passively and security is more important than risk, and for Actives, it means their wealth was obtained by taking risks. Finally, Bailard, Biehl and Kaiser define adventurers, celebrities, individualists, guardians, and straight arrows.  I don’t think there is any one right approach.  Rather, the important thing is knowing yourself, and understanding the benefits and weaknesses involved with how you interact with money. If your know your money personality, you are in a position to limit your weaknesses, and build on your strengths.

At the risk of stating the obvious, knowing your aspirations and goals comes before deciding on your savings goals.  Be careful what you ask for.  You might just get it.  People change over their lifetimes.  There is nothing we can do about that, but setting life goals in accord with the kind of person you are will make your goals far easier to make than just pulling a figure out of the air. Knowing your money personality, your values in life, your aspirations and life goals, and the standard of living you expect to live along the way all go together in deciding savings goals.  If this sounds heavy-handed, I mean it to be.  Choosing your savings goals means choosing your future.

Having goals right for you will make it easy to find reasons not to spend more than you need, and choosing savings goals with real meaning to you will make it fulfilling as you build savings.