What do you call Saving?

I have always wondered how other people viewed "Savings". For instance, lets say a person made $3k a month. For this example lets say $1500 went to bills/life (bills, haircut, entertainment, norm monthly expenses). $1500 went to sinking funds (clothing, vacations, life ins, car ins, long term saving goals, etc). Of the sinking fund, one category was actually "savings". That fund gets $100 a month.

Would you describe this scenario as "this person saves half of their income" Or "This person saves 3% of their income"?

Techically 50% is being saved for stuff but only $100 is actually not earmarked for something (a more generic view of savings). If you took the 50% view, one could argue "I save my entire paycheck! I just need to use half of it now" lol

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    • eloquentz
    • Numbers Wizard (Accountant), Acoustic Artist (Musician) and Jill of all Trades (Wife & Mother)
    • eloquentz
    • 1 yr ago
    • Reported - view

    Most of those sinking funds are not savings, they are waiting until the expense actually happens. Planning for your actual expenses, even the ones that only happen once a year or less is important. It isn't "savings".  Long term savings, is that retirement? Because I would consider that part of savings (although not necessarily liquid savings).

    A lot of this though is semantics.

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      • RIP_MSMoney
      • FinTech Programmer
      • rip_ms_money
      • 1 yr ago
      • Reported - view

      eloquentz 401k, Roth would be outside of this equation for this hypothetical scenario. Those are pre take home expenses. Long term expenses would be saving for new home, saving for new car, etc.

      I would agree that it is semantics which is why I was curious of other views.

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  • . . . I just don't worry about it. If a concerned family member asked, I vaguely state "oh, I'm saving enough." I do max out 401(k) and IRA so if someone asks, I could say X% of my gross goes to retirement and don't bother "labeling" the rest of it.  There are certainly things I'm allocating for that won't be spent any time soon. Like I have a New Car category, but the plan is to keep my existing car for  another 10 years (I bought new in 2015 and plan to buy new again). But I don't call it "savings". I also have a loss of income category that at its current level of funding could get me through 6-8 months of unemployment, but I'm not calling that savings either. Plus once I hit a particular milestone, I stopped funding it at a specific amount every month and now it just gets a particular percentage of the leftovers.

    I do taxable investing every month but that's a tracking account and not part of my budget (well it's an "expense" in my budget when the automatic transfer hits on the 30th). That's there for some vague future thing, like what people often refer to as "saving" or to help out if I'm at the last little bit of something big - like I'm saving up $22K for some home renos. I may just say eff it when I hit $18K and take the other $4K from the investments just to get the darn thing over with.

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  • RIP_MSMoney Admittedly, I'd get slightly tripped up on this one if asked for a specific amount. We include savings accounts in the budget so that they can have jobs, too. If asked how much this person is putting aside for the future - $1,500. If asked how much this person is saving towards a car - a portion of that $1,500. If asked how much this person is saving towards an emergency - $100 (or what you would consider general savings for). I usually default to my Emergency Savings when asked, but I wouldn't be against an, "I only spend X amount of my income" and let them think what they will about the remainder. I love talking about finances, but I'd need a specific question for a specific answer. 🙂

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  • All savings is just deferred spending. Trying to draw a line is difficult to impossible.

    Like 2
  • I like how nolesrule puts it. Answer is going to differ depending on whom you ask. If someone asks me, "How much of your paycheck do you save?" I base my answer on long-term savings. I include retirement savings, investment account contributions, and things that have a 1+ year horizon on being spent. I differ from jenmas in that I would definitely consider an income replacement fund to be savings. I'd also consider money set aside for a car that I don't plan to buy for several years to be savings. But, I don't consider the money I have set aside to pay an insurance premium every 6 months as savings. But that's just where I draw the line, since I see 6 months as a more short-term horizon.

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      • RIP_MSMoney
      • FinTech Programmer
      • rip_ms_money
      • 1 yr ago
      • Reported - view

      Slate Blue Pilot Hmm. So you would put the line at 6 months. I do like that hard lined approach.

      The opposite question has also been pitched to me as well "Your expenses should not exceed X percent of your income". Well define expenses?? Is money towards Emergency Fund an expense? It is deferred spending when you think about it. Is saving for a new car deferred expense considered an expense? Saving for clothing for a family of 5? Savings for vacations (winter,  summer, xmas, etc)? Savings for Xmas Presents, car registration, etc. The list can go on. All expenses.

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    • RIP_MSMoney I'd say I draw the line at a year - should have been clearer about the 6 month example; what I mean is that I would not consider a 6-month horizon to be long-term, but I would consider a 3-year horizon (let's say, to save up to buy a new car) to be long-term, and that I would draw the line between those two things... at about the 1-year mark.

      The way you pose the opposite question makes me think! If I'm talking to a YNABer here on the forum, we may refer to our emergency fund / income replacement fund contributions as monthly expenses because we are believers of the "true expense" doctrine, and that anything that we are funding should be considered an expense for purposes of budgeting. However, if I'm talking to most anyone else - including my partner, friends, work colleagues -  I would not refer to funding emergency fund / income replacement fund contributions as expenses. The reason is that this category is being funded and accumulating for purposes of financial security, with no short-term plans to utilize these funds. In the same vein, I do not colloquially consider my retirement contributions as being expenses. 

      Christmas presents, clothing for a family, car registration - short-term things on which you know you'll be spending the money, so yes, these are expenses.

      But, the saving for a new car trips me up because I just said above that contributions toward it should be considered savings, but I also tend to think of it as a true expense. So, I guess the conclusion I'll make is that I would count contributions toward long-term true expenses as savings.  Or, the TL;DR version:

      -Contributions toward short-term expenses = not savings.

      -Contributions toward long-term expenses = savings, and where you draw the line at "long-term" is debatable.

      -Contributions toward financial well-being and financial security things that colloquially are not considered expenses even though we refer to them as expenses for purposes of budgeting on YNAB = definitely savings.

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      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 1 yr ago
      • Reported - view

      The problem, with defining on time frames is that just changing the payment terms can switch things between savings and spending.

      Homeowner's insurance can be paid monthly, it can be paid annually. Property taxes are at the mercy of the legislated payment frequency, so the timing depends on where you live. I moved and went from quarterly to annually. You can buy a car for cash, or you can finance it with a monthly payment.

      There's a reason YNAB has a Rule 2, and it's called True Expenses.

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    • nolesrule This is a good point. But I am curious to hear what you, being an experienced YNABer, say when a friend or colleague who isn't as well-versed in YNAB, asks about how much of your income you are saving. It's true that in theory it's very hard to draw the line and give a "correct" answer, but in practice, do you ever answer this question?

      Edit: And to clarify, I'm not fishing to hear about how much money you have! Just want to know what categories or off-budget tracking account contributions you consider to be going toward savings when asked about this colloquially.

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      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 1 yr ago
      • Reported - view

      Slate Blue Pilot What I tell those people not well versed in YNAB is that I do things in a manner that is not considered traditional but to me works better.  It's not actually about savings or a savings rate. It's about living below your means and saving enough for retirement.

      I tell them we max all available tax advantaged accounts, we aim for 6 months expenses in an income replacement fund, and accumulate adequately monthly for all foreseeable expenses including non-monthly expenses, and any remaining money each month gets sent out of the budget to a brokerage (although the reality is only 60% goes to the brokerage, as we split the remaining 40% between a couple categories in our budget we want to increase and also our children's custodial accounts).

      My daughter's bat mitzvah is coming up in February. We've been saving money for years by accumulating it in a YNAB category, but we're going to be decumulating it over the next several months. And we have another one in 3 years. Same story. It's both savings and spending, and it just doesn't really matter. If I'm planning to spend it, I accumulate for it.

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    • Annieland
    • YNABbing every day since 2009!
    • Annieland
    • 1 yr ago
    • Reported - view

    This topic trips me up too, mostly when I read so much advice that screams "SAVE AT LEAST 15% OF YOUR PRE-TAX INCOME!!!"  And then I'm like, ok so I just switched to a plan with an HSA... do I count that?? But I pay for medical from it... I save in an employee stock plan.  But then I cash it out and reinvest it again and pocket the profit.  I defer income like crazy too in YNAB.  My personal finance software right now shows 26% savings rate over the last 30 days if it includes all dividends, but in YNAB I spent twice my income last month 😫. 

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    • HappyDance
    • YNABing consistently since 2014
    • HappyDance
    • 1 yr ago
    • 2
    • Reported - view

    I used to budget by account and by percentage allocation, so I can feel myself being seduced by the numbers when reading a well-written and  interesting financial planning article that discusses percentage allocations as measurements of progress/success.  It's at those times that I have to remind myself that budgeting by percentage allocation is an entirely different budgeting method, one I left behind, and to not spend too much time assessing my current progress on those metrics.

    I still use some percentage guidance as my preliminary planning targets when I go through my annual financial goal planning exercise and when I make spending decisions (like how much car to buy in relation to my income).  I usually tweak the percentages to hit specific goals and to smooth the monthly allocations to round whole numbers, so it's good to remind myself that YNAB enables me to fine-tune those initial percentages into smarter goals and allocations.

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    • Technicolor Cheetah
    • Not sure when I became a cheetah...but I'll run with it
    • technicolor_cheetah
    • 1 yr ago
    • Reported - view

    I prefer to think of my savings as giving us the freedom to weather attacks of life.  I can give specific numbers as to what we're putting away for retirement or the kids' college funds but I can't put a number on 'savings' as that's amorphous.  I like to think of it as a graph - most months inflow is higher than outflow.  The more we save, the easier it is to move money around and have a down payment on a new car or buy a used one outright, the easier it is to buy tickets for a wedding or a funeral.  Our budget is largely deferred savings as we keep our income replacement money off budget for personal reasons.   Savings basically means flexibility.  You have a lot more choices when you have more savings.  

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