My savings and I have had a rough relationship.
Every time Elon wakes up Twitter, I’m right there ready to hit the buy button on Tesla. If stocks were cocaine, then I’m surely an addict and love the high.
We’re told saving money is good by our grandparents. The average American, as an example, has a personal savings rate of 7.6% according to Statista. The focus is on savings and increasing that rate substantially. But having easy access to savings has its problems.
My formula for money has changed because of the temptations that follow the trail of dollars. The process I use for spare money that’s not invested is this:
- Have enough money in a transaction account to cover rent and expenses.
- Have $0 in a savings account.
- Any leftover money is invested in assets: stocks, bonds, real estate.
You might say, “But Tim if you were more disciplined, then you wouldn’t need to have zero savings.”
Discipline is one thing and temptation is another when it comes to money.
Your butcher gives terrible financial advice
The problem with savings is that everybody, including your butcher, is an expert in money. You hear about the good investments from people and they rarely talk about the dud investments before that moment where they never calculated the losses.
As a kid, our family butcher would give financial advice. As a teenager, our family mechanic would tell us how to spend money. As an adult, anybody I meet on the internet wants to spruik an investment opportunity.
Having money in your savings account can tempt you to listen to these amateurs and invest in whatever the latest company selling essential oils or oxygen in a spray bottle is promoting at the time.
My simple rule is this: you have to show me your investment portfolio and have been investing through at least one recession for me to listen to your advice.
If you haven’t lived through a recession or made money investing, there’s nothing wrong with you — but it does mean I can’t be your investment student. Sorry.
The stock market is a drug
Try this experiment: read the financial news every day for a week. You’ll notice that the same company, investment, or person can give multiple conflicting opinions all in one week.
Amazon can be the best buy of the century and on its way to bankruptcy all in a day’s news. The news becomes like a drug. You become tempted to act on it because the drug of more money makes you think about how you can work less in the future.
If you have savings, falling for the news and buying based on a headline can destroy your net-worth.
“Break a leg” can become literal
Every time someone says “go break a leg” I worry it might really happen. Then having no savings could be a problem. But the problem is actually forced discipline in disguise.
See I have savings, but it’s tied up in investments. If I do actually break a leg and need money for hospital bills, it requires me to pay the fees associated with selling a few investments. During a time of need, it’s no sweat. During a situation that is tempting, it’s enough of a detractor to stop me from being stupid.
Selling assets takes time and there are fees involved. It’s peanuts if you need the money and its a high-price if you don’t need the money and just feel like gambling on the next WeWork disaster right around the corner.
Create a barrier to protect you from temptation and support you during times of need that can only be fixed by money.
Putting your money to work
Money in the bank is dead money, especially with negative interest rates in some countries. You get a small amount of interest that is eaten away by taxes and inflation (the true cost of inflation is often misunderstood).
Having zero savings allows me to put my money to work so that I can slowly work less and focus on being creative.
Money put to work allows you to focus your attention on what matters and transition, one day, from doing less work you hate, to pay bills, and to tip the scales towards doing work you enjoy where the dollars per year don’t matter as much as the fulfillment you get.
Spend less by saving nothing and investing your money in assets.
Collisions with bankrupts
There are people in society that become obsessed with money. They hold the secret title of “bankrupts.”
They treat life like a high stakes poker match and can be found betting the lot on a consistent basis with the repetitive result of declaring bankrupt. Bankrupts can then try to win their fortune back my swindling you out of yours. You’ve encountered many bankrupts in your life already but you just didn’t know it.
When you have no savings, bankrupts stay away from you because you can’t help them raise more money for their next poker tournament.
Contrary to what you might think, I also like to spend money on experiences which further depletes my savings.
I plan on reaching the end of my life with no money and going through multiple phases where most of my money is spent living, not existing.
The amount of savings you have can be a sign of how much living you’re doing. Don’t forget to live.
Self-worth vs. net-worth
Not having savings can lead to an interesting insight: your self-worth is not determined by your net-worth.
You might be worth millions of dollars according to your savings account, but if you feel like crap and treat people poorly, it’s going to be a horrible human existence you’ll experience. You dial up your self-worth like this:
- Being humble
- Being around people who build you up
- Being good to yourself
- Lowering your inner-critic
You’re already enough. You’re doing the best you can. You don’t need a huge stockpile of savings or a Lambo that goes down in value every year to tell everybody you’re “doing fine.”
Invest your money. Watch it grow. Use the money to shift the balance of work you do away from the variety that pays bills and closer to doing work you enjoy.
You are so much more than the amount of money you have. Measure your self-worth in how you feel and by how you treat others.
A savings account full of dollars won’t make you happy; only you can find your version of happiness.
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