Life is full of troubling paradoxes. Whether you call it a Catch-22, opposites attracting, or simply “Things that don’t make sense,” this phenomenon can spill into relationships, educational institutions and even national policy.
Well, now you can add finances to that list.
The basics of personal finance always seem to start with save, save, save. Even if you’re only saving a small safety net, it’s still the first step in many financial education courses, like Dave Ramsey’s Financial Peace program and Suze Orman’s tips and advice, just to name a few.
Which is why when I consciously started saving less and ended up with more money, things got really weird.
Saving is always the first step… but should it be?
I am one of those repeat offenders who can save $1,000 a hundred times…. and still never seem to have any money in the bank.
There’s always some pressing reason that we need to transfer that money out of savings. Maybe an important car repair comes up, or we need to buy groceries but a freelance check hasn’t come in yet.
(Before you say, “Sarah, that’s not what an emergency fund is for, that’s what a car repair fund and a grocery budget are for,” please keep in mind we’re at the beginning step of Dave Ramsey’s Financial Peace program. Getting and keeping $1,000 in the bank and paying down debts are the most important goals.)
So you can imagine what this habit did to our bank account: We save up $1,000, but it’s never there for long. We find a way to transfer $100 here or $300 there for different things that come up, with money moving in and out like a revolving door.
This put our finances in a constant flurry, like little money-waiters whooshing through the kitchen in-and-out doors at a busy restaurant. Despite feeling like we were working hard and saving money, we never gained traction on our savings goals and we constantly reinforced our own bad spending behavior. And that’s when I knew we were in trouble.
Solution: Saving Less, But For Long-Term
It turns out I was not managing our money realistically. While saving is an important step in learning to manage your finances, saving too much too soon can be just as damaging as not saving enough.
Automatically depositing an unrealistic amount of money into your savings account will cause you to repeatedly access your savings account for soft emergencies. And this behavior will create an unhealthy savings habit that can indefinitely stymie your financial progress.
So, I tried something new. For the past two months, I’ve started not transferring money into our savings account unless I was 100 percent, no-seriously, perfectly free from needing it for the foreseeable future.
For example, rather than “saving” all of a $600 check that comes in, now only $150 might go to savings and the rest would go in the intermediary fund waiting for the next impromptu bill. Much to my surprise, I’ve been putting a lot less in savings but keeping a lot more in savings at the same time.
This has brought about two seriously awesome changes:
1. The money in savings is truly there for savings, and
2. I don’t have to transfer money out of the emergency fund because I’ve got my bases covered with a temporary fund.
Obviously the goal is to not have surprises anymore because you’re budgeting for them elsewhere. But until we get to that magical land of money unicorns and coin baskets, this is how I will approach our revolving door savings account problem. And we’ve managed to build up that $1,000, and more, and this time for good.
So, the next time you set up a transfer to put money into savings… pause. Are you 100 percent sure that you won’t need to call this money back into your checking? Then proceed. If not, you might save more in the long run if you save less now.
Have you ever found yourself “saving too much”? Do you even think that’s possible?
A version of this post originally appeared on Life [Comma] Etc.
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