Another question about savings

[hopefulfirefly]

If we are saving "FOR" something, does that still count as savings? Or, is savings only something that you truly don't intend to spend. For example, dh and I will be adopting, so as part of our budget we plan to allocate a specific dollar amount each month to save for our adoption which won't occur for a few years. Is that % of our income considered savings?

[jIM_Ohio]

YES I would consider that short term savings

[Aleta]

There is long-term savings for retirement, medium term (Housing, a car. furniture), short term savings for various goals. A short time goal could be a vacation, a bike,or anything that would not be considered part of the budget.

Everything that you save will be spent eventually even your retirement. It's just a matter of time and that's why they call it long, medium, and short-term savings.

There are some who advocate saving 15% of your gross for your retirement savings and 5% in your shorter term. Depending upon your budget and cash flow will determine how many different goals you can save for.

[disneysteve]

If we are saving "FOR" something, does that still count as savings? Or, is savings only something that you truly don't intend to spend.

What's the point of saving money you don't ever intend to spend?

Everything that you save will be spent eventually even your retirement.

I agree. Though one could argue that most of us hope not to spend all of our retirement money. That 4% withdrawal rate we always talk about is designed to increase the odds that you will not outlive your money, meaning there will be money remaining when you die that passes to your heirs.

[hopefulfirefly]

What's the point of saving money you don't ever intend to spend?

I agree. Though one could argue that most of us hope not to spend all of our retirement money. That 4% withdrawal rate we always talk about is designed to increase the odds that you will not outlive your money, meaning there will be money remaining when you die that passes to your heirs.

I guess I didn't word it correctly. I was thinking in terms of an EF...ideally, you save that but hope that you don't have to spend it.

For example, I like to incorporate saving for vacations into our 'savings' budget every month. If I had a goal to save 25% of my income, I would not include the 'vacation savings' as part of that 25% because it doesn't seem like savings at all-it will be spent shortly and then I'll be back to saving for another vacation.

Do people normally consider something like that (vacation) in part of their 'savings'?

[disneysteve]

Do people normally consider something like that (vacation) in part of their 'savings'?

No, I don't. I save 19% of my gross income. Part goes to our Roths. Part goes to our daughter's 529 plan. Part goes to a taxable mutual fund account that will likely be part of retirement money. And part goes to prepaying our home equity loan and, once that is repaid, toward the mortgage.

Any money we set aside for things like vacation, furniture, next car or other major purchases is not counted as part of that 19%.

[hopefulfirefly]

And part goes to prepaying our home equity loan and, once that is repaid, toward the mortgage.

That sparks another question-

I intend on paying extra per month toward our mortgage. I'm including that amount in our "housing" category. Should I not? Should I be including it in our "savings" category? Or, is that not what you're talking about in the quote above?

[MonkeyMama]

I generally consider anything I save and do not plan to touch for 12 months as "savings."

I'd still say it is savings (to the OP) because it is not a regular expense. You are saving for a one-time thing. Once you adopt you will probably be able to keep saving the same amount to other savings goals.

It's kind of just semantics. I think it is more important to look at if you are saving enough to reach your goals. I figured maybe you ask because you are looking at some savings guideline (%). For an expense like adoption you may need to save more than the average guidelines. Just something to keep in mind.

Since we pay cash for everything, the general guidelines are not enough. (But we have no debt payments so it is easier to save more).

(Extra money to a mortgage or HELOC I would consider savings. Since you could stop and put the cash elsewhere at any time).

[pfblueprint]

I'm with MonkeyMama, if I intend to or have to spend it within a year, I don't consider it savings. If I can change my mind about something in the future, then I'd consider it savings.

[zakity]

I have three accounts, checking, savings, and the EF. I also have a spreadsheet for the bills. $200 each pay period (every other week) goes into the savings account. The rest goes in checking.


The way I work it is:

Everything goes on credit card and I track every purchase. We use it because we get reward points. DH is trained to give me his receipts. The credit card has it's own column on the spreadsheet and our budget is tied into that column. It is a double entry system. If I add something that we spent money on, it has to be deducted from the "budget section" at the bottom of the column.

If the money is going to sit around for a while, like the money set aside for a big purchase (like jeep tires, things more than $50 to $100) or xmas money, then it gets dumped into the EF where it gets the most interest. Our tax return usually goes for big purchases (like the jeep tires) and just gets dumped into here since it is going to sit around for several months (or more). The money lives there until we need it, usually when we find a sale or a good price on whatever the big purchase is. The EF column lists the money in there, the money that needs to come out for things, and the projected amount that might be put in there (if our budget works out correctly).

Checking is where we pay the bills out of and we keep very little extra in there (like $20, sometimes less) over the expected bills amount. It doesn't get interest and I can't see keeping more money in there since we use the credit card to purchase things. If it is less than $20, DH is notified that he can't take any money out and he will ask before he draws any money out.

Savings is for extremely short term stuff or to help cover the bills. It has it's own column. Now, it is mainly just the amount that needs to be transferred into checking to help cover the bills (since all the prices of everything went up).

[meatloafkend]

What a terrific question. I often wonder that same thing. I put away 30 dollars each month for Christmas. It goes into our savings account, but I never know if I should count that as saving's money (because it's already earmarked)

[jIM_Ohio]

To me savings is money which is not spent in the month it is earned. If you pay car insurance once per year, the amount you set aside for it each month is savings.

[disneysteve]

To me savings is money which is not spent in the month it is earned. If you pay car insurance once per year, the amount you set aside for it each month is savings.

I agree, but I think the question was also asking about percentages. When someone says they save 15% of their income, do they mean all savings or just the long-term stuff?

As I said, we save 19% of income and that does not include the short-term stuff like non-monthly bills, vacations, car repairs, holiday gifts and such. So in reality, we actually save more than 19% of income.

[disneysteve]

I intend on paying extra per month toward our mortgage. I'm including that amount in our "housing" category. Should I not? Should I be including it in our "savings" category?

I would count that as savings. You are indirectly earning interest on that money by reducing the amount of interest you pay. Let's say your mortgage is as 6%. You are saving yourself 6% on every dollar you prepay (not accounting for tax deduction). Many people consider their mortgage prepayment to be part of the fixed income segment of their portfolios.

[noppenbd]

I look at savings on a yearly basis. So anything that ends up being spent during the year does not count towards what we "save". For us this would include Christmas, travel, electronics, etc.