Why Do We Save?
Why do we save?
Why do you save?
I suspect many of us know our own respective answers that are at the heart of personal finance planning 101.
For us, I’ll remind readers (and myself! ha.) the reasons why we save in today’s post inspired by this Morningstar article and its sources below…
Why Do We Save?
For me/us, it’s for many reasons…I’ll get to those shortly.
According to the article I found, recently on Reddit:
“u/SessionSmooth362 asked r/PersonalFinanceCanada about saving. They said they were, “Saving money but not sure what I am saving for” They explained that they are 26 and recently maxed out their TFSA with about $78,000 invested. The original poster (OP) then said, “Lately I have been thinking, “OK now what?”
Interesting indeed, now what?
Here are some reasons from the article why people save and what objectives they are saving for:
- Build an emergency fund
- Grow retirement investments/assets
- To pay for a big trip
- Fund entertainment expenses (front-row at a concert/show)
- Save money for a home downpayment
- Pay for a new/replacement vehicle
- Pay for a new/replacement phone
- Pay for a new/replacement computer
- To fund education (professional, fun (language, cooking))
- To spend money on hobbies
- Pay for new/upgrading home furnishings (furniture, cookware, appliances)
And the specific list of items goes on…
Why Do We Save?
I’ve answered this particular question in a few previous posts but it’s worth sharing in context with that Morningstar list above – why do we save, what have we saved for and what are we currently saving for.
1. Emergency fund
We keep this amount handy just in case we need it without tapping lines of credit and owing more debt.
It’s our cash buffer and sleep-at-night factor that’s personal. Your mileage may vary.
We are also very likely to increase this cash position as semi-retirement is considered. Read on at the end for that post.
2. Grow retirement investments/assets
We know to fund our semi-retirement needs and wants that income streams will be necessary from various accounts. In a nutshell, this is our plan for the coming years:
We will need to work, at least part-time, to fund our lifestyle. This means, not working at all is not an option for us – we simply don’t have enough saved up to stop all work.
We’ve estimated our annual spend will be in the range of $70,000 to $75,000, without debt payments, that includes both needs and wants. Our base expenses (food, shelter, clothing) are just over half of that. We don’t have too much flex on those items.
We enjoy having a home to call “home base”. We aim to be debt-free soon.
3. To pay for a big trip
We love to travel and want to enjoy visiting different cities and countries around the world. We need money for that. 🙂
We don’t have a detailed travel budget, yet, but we’ll work on defining that over the coming years… It is our hope part-time work throughout our 50s will cover those travel wants.
4. Fund entertaiment expenses
We pay for fun stuff now (today) and we’ll continue to do so, in the future! We enjoy experiences, going to local festivals, sporting events, etc. We need money for an Uber now and then too. 🙂
5. Save money for a home downpayment
Not applicable to us!
6. Pay for a new/replacement vehicle
We’re starting to save for a newer vehicle, now, and hope to pay cash for our next car in 2024 vs. borrowing lots of money to buy a depreciating asset.
7. Pay for a new/replacement phone
We don’t borrow money to buy our cellphones. I hope you don’t either?
8. Pay for a new/replacement computer
Just like our cellphones – see above – but I can appreciate some of these Reddit folks are millennials too.
9. To fund education
Super important to invest in yourself! This may or may not apply to us in semi-retirement although we hope to grow and learn on our own terms of course.
10. To spend money on hobbies
I enjoy golf and cycling and walking/hiking throughout the year – except in the winter months! I will hopefully have more hobbies in semi-retirement too, time to learn and try new things. I intend to volunteer more.
11. Pay for new/upgrading home furnishings
Since we enjoy having a home to call “home base”, it needs to be maintained. We have a line item in our existing and future semi-retirement budget for minor improvements and changes.
Why Do We Save?
Not surprisingly from this list, but healthcare costs are non-existent from the Reddit list. That could be becuase younger generations believe that healthcare is free or maybe they feel they will live forever! Ha.
Well, we’ve started to budget for that in semi-retirement too via healthcare premiums.
Here is what to consider if/when healthcare workplace benefits are disappearing:
Why Do We Save Summary
My list of why do we save could continue even further but this Reddit list from Morningstar was a nice starter. Consider your own “whys” behind why you save for other money management values.
Image courtesy of Behavior Gap.
I’ve often mentioned on this site it’s not your plan that’s important but its the process of planning (and re-planning) that will help you get you to where you want to go.
In that light, here are some closing reminders when it comes to any financial plan:
- Articulate your money goals. Find your money whys. Write them down and monitor them if you can.
- Where possible, automate your savings for investment purposes – make savings automatic.
- As often as possible for as long as possible, invest in lower-cost products to help you realize your money goals. If in doubt about what individual stocks to own, then consider index investing.
I hope this 1-2-3 actionable approach provides some insight into how I/we think and behave when it comes to our financial life.
Thanks for reading.
Got questions or comments? Share away! I look forward to reading all of them.