Unlike many people these days, we don't save for specific items. We don't have college savings accounts for the kids. We don't contribute to defined retirement accounts anymore. And we don't have a variety of accounts labeled "vacation", "new car", "home repair", or "renovation".
Instead, we have one savings goal: The Future.
This pretty much covers anything and everything, and by saving for the "future", we avoid certain issues that we might incur by breaking our savings goals and investments down further. Here are some of the reasons why we chose to adopt this strategy with our savings.
Not Getting Fixated on Saving for any One Thing or Goal
I don't like getting overly fixated on any one investment vehicle or savings goal. Only focusing on saving for a home, or building retirement savings, or saving for college, can leave me looking at particular savings vehicles commonly associated with those particular investments. Plus, this money can get spread all over the place into various accounts -- a little here, a little there; a little in an account for Susie's college, an account for Bobby's college, an account for the new car, an account for the new dog -- so that it seems almost meaningless and ends up almost being more trouble than it's worth.
Plus, to me, it's like having blinders on, pushing me toward focusing on money that has been set aside for one thing and that thing only. If I say I'm saving for vacation and I hit my savings goal, then I might reward myself by spending elsewhere. However, by maintaining a savings goal of saving for "the future", I really put no limits on my saving for any one thing, rather incorporating a variety of savings goals into my plan and in essence using this unlimited goal to push myself harder and further than I might with a more defined savings goal.
Breaking Out of "Standard" Plans
I prefer to make my investment and saving decisions based upon risk, rewards, and returns rather than the commonly accepted form of investment. When people think college savings, they might think 529 plan. When they think of retirement, they probably think of stock market based IRAs, 401(k)s, or 403(b)s. When they consider saving for a home, they might think cash savings accounts or money market funds. This is exactly why I prefer not to associate savings with any one goal, preferring to think return on investment as opposed to what the common investment answer to a particular savings goal might be. This helps me get "outside the box" on savings ideas, allowing me to consider options that others might not think of when they follow the standard school of thought on a particular savings goal or plan.
I can't stand it when I hear stories of people putting money away for retirement or college savings for the kids when they have credit card debt they're paying on at 15 percent. I highly doubt that many of these people are making over 15 percent on their investments on a consistent basis, so in essence they are losing money on the deal.
Personally, our family took the route of working to pay off any and all debt -- especially higher interest rate debt first -- before aiming for larger savings goals. In the process, once we were done with our debt, we were done with it, which allowed us to start saving full strength for the future. There weren't choices as to whether to pay the mortgage off first or put money into a college fund. There weren't decisions to be made as to which credit card to pay down first or if we should instead contribute to our retirement savings. By eliminating debt initially, we were able to focus squarely on putting money into saving for the future, which we could then portion out as needed for things like our first child, a home, car repairs, a second child, etc. etc. Because we had saved for "the future", rather than just specific items, we were still able to afford everything we could have set individual goals for, plus some.
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The author is not a licensed financial professional. The information provided in this article is for informational purposes only and does not constitute legal or financial advice. Any action taken by the reader due to the information provided in this article is solely at the reader's discretion.
- Banking & Budgeting