The number one rule of personal finance: you have to save money. Why? Because it makes your grandma proud. Because everyone knows you’re supposed to live on less than you make. Because it’s just the proper thing to do, right? Maybe, but those aren’t very motivating reasons.
What if I told you there is no such thing as saving money? It’s an illusion. It isn’t even real.
And once you realize that, you’ll be even more motivated to save money. Come alongside my young Padawan, cause I’m going to teach you a Jedi money mind trick.
The problem with savings accounts
If I was to ask a random person Billy Eichner style, “What does it mean to save money?” the most common answer would be, “Putting money in a savings account.” Most people think the act of parking money in a savings account is synonymous with saving money. In fact, a lot of marketing makes us think in terms of accounts, because financial institutions benefit from it!
And there’s nothing wrong with using a savings account! But here at YNAB, we teach you to focus on the purpose of your money, not just the location. Defining savings based on an account isn’t very helpful.
So many people put money in a savings account on a rotating basis. When they get paid, they put a little money in savings, not because they’re saving for something specific, but because they feel like they’re supposed to save money. But by the end of their pay cycle or when the credit card payment comes due, they reach into the savings account to cover their expenses.
But they regularly put money in their savings account, so they’re saving money, right?
No, they’re spinning their wheels and they can never get ahead. And that’s because they’re not saving with a purpose. They’re not weighing the tradeoffs of when they spend or when they save. So even though their money is physically separated in a savings account, one dollar is no different from any other, because none of it has a job.
What does it mean to save money?
At YNAB, we think beyond the physical location of your money. Money that you’re saving doesn’t have to be in a savings account. It can be in checking, savings, or in a wad of cash under your mattress. The location doesn’t matter, only the purpose. Rule one of YNAB says give every dollar a job—that includes your savings too.
We need a better definition—one that has nothing to do with accounts. Saving money means deferring the use of your money, for a later time, for a specific purpose. By that definition, the location doesn’t matter at all. It doesn’t have to be in a savings account. If you’re not using your money right now and you’re giving it a very clear purpose, you’re saving it.
Every dollar is a savings dollar
If we’re following rule one, we’re giving every dollar a job. So if saving money means giving it a purpose, and every dollar gets a purpose—no exceptions, that means you’re always saving all of your money. The only question is, “How long?”
If you assign money to groceries on Monday and spend it at the store on Wednesday, you’ve saved it for 5 days. If you set money aside on the first of the month for an electric bill that you pay on the 21st, you saved it for 3 weeks. If you allocate money for next year’s summer vacation, you’re saving it for a year. If you put money in your car repairs category, you’re saving it, well, hopefully forever. But we all know you’re really saving it until the next time your car breaks down (which is sooner than you hope).
If you give every dollar a job, every dollar is a savings dollar. It’s just a matter of how long you’re saving it.
Every dollar is a spending dollar
But if every dollar is a savings dollar, every dollar is a spending dollar, too. If everything is savings, the whole idea of savings breaks down. If everything is savings, nothing is savings.
Again, saving money is deferring the use of your money, for a later time, for a specific purpose. We’ve talked a lot about the “later time” part of this definition. Let’s talk about the “specific purpose” part. Every single time you give your dollars a purpose, no matter what that purpose is, your plan is always to spend it eventually. That means, you’re never really saving money.
Whether you save your money for five days, three weeks, a year, or indefinitely, the purpose is to spend it at the end of that savings period.
Even with retirement, it’s only a matter of time until you spend it. If you’re 25 and you’re planning to retire when you’re 65, you’re saving it for forty years! But, even then, you’re still planning to spend it. That’s the purpose of your retirement savings—to spend it when you don’t want to work as much.
If you’ll allow me to get a little morbid here, even if you’re blessed enough to have money left over after you pass away, you still haven’t saved it. You’ll spend it by sending that money to your heirs, who will save it for a time and then spend it themselves.
There is no such thing as saving money. In time, you will spend it all.
Save and spend with joy
Here’s why this matters: If there’s no such thing as saving money, deferring the use of your money can actually be fun. You’re not saving it! You’re getting ready to spend it! Realizing that the purpose of your money is to spend it makes saving it a joy, because you’ll actually get to use every dollar to build the life you want.
If you give every dollar a job, you stop saving money for all the unmotivating reasons we listed at the top. You don’t have to save out of an obligation to your parents, yourself, or society in general. You don’t have to save because of a commitment to some arbitrary sense of morality that’s not really connected to reality. Instead, you’re the one in charge. Your money is yours and you can use it to build up yourself, your family, and your community.
If you love the way you spend your money, you can love the way you save it, too. Because if you give all your money a very clear purpose—saving? Spending? It’s all the same thing.
If you want to love the way you spend (and save!) your money, let us show you how. Try YNAB free for a month.
