3 Ways to Think Differently About Savings

Three Steps that Will Help You Think Differently About the Value of Savings in your Life

 1. Look at the big picture of money.

69% of all the money that flows through the US economy money is spent by people. Peoples’ spending generates the most value in the economy. Not the banks, or the factories or Wall Street. It’s you.

Your money is critically important to keeping the economy running. And it is just as important to use it well to keep your life running.

2. Get real about your savings account.

Many people manage their money by keeping separate savings and checking accounts. Checking accounts are great for your day-to-day spending – the money you need for your life to run. Your food, your clothes, your car, your home, insurance and entertainment. Basically, your everyday costs.

Savings accounts are used to store what money is left over after you meet your costs (bills, food, rent etc). Banks promote savings accounts as a safe place to put your money. But the reality is that with interest rates as low as they are, you’re savings account is doing you much good for extra money beyond your emergency fund and short term savings.


Consider 3 Separate Goals for Savings:

  1. Emergency savings
  2. Short-term goals
  3. Long-term savings

Emergency Savings 

It’s important to have money accessible for emergencies– think of it as a cushion in case you lose your income, become ill or have a large unexpected expense. The rule of thumb is to save enough to cover 6-9 months worth of expenses should you lose your income, run into a family emergency, or become unable to work. An emergency savings fund is important for a few reasons: first, to avoid you having to go into debt or have to make hard decisions if you run into trouble, and second, for your own peace of mind and security.

Short-Term Savings

Savings accounts can be a good place for short-term goals as well. Short-term goals are things you want to save for that you would not borrow money or go into debt to achieve. Taking a trip, upgrading your computer, holiday gifts for friends and family. These higher-cost items are best paid for by setting aside short-term savings.

Long-Term Savings 

This is the money you need to build the future you want, like paying for a wedding or honeymoon, putting a down-payment on a home, taking a trip around the world, or saving to start your own business.

Depending on how far off you are from achieving these long-term goals and your risk and comfort level, you can either save for these kinds of goals in a savings account (at next to zero interest), or you can put some of this money into a strategic and balanced portfolio aimed at slightly growing or maintaining your money.

By understanding these three goals, you can reduce the temptation to dip into emergency or investment funds for your short-term goals.