Before you do a happy dance because The Sytch said you didn't need to save money, listen up.
After a person has their emergency fund in place, most people should STOP saving money.
So, what's the catch, Zach?
What Saving Is
If this is not your first time reading one of my blogs, you already know there is going to be a catch.
When most people use the word saving in the personal finance world, they are primarily focused on liquidity (meaning money that is easily accessible, such as cash or money in your bank checking or savings account).
Typically speaking, over time, savings will lose out to inflation (historically, plan for a 3% inflation rate). This means that all the dollars you save in the traditional sense will eventually lose value.
Even high-yield savings accounts (HYSA for short), which I really like, will not reliably keep up with inflation.
What should I do with my money then after I have an emergency fund??
Hello, Investing
Investing is when you start using your money as an asset. In the most basic sense, assets are things that make you money.
When people think of assets, a lot of people go straight to real estate. But, my favorite asset is the stock market.
No matter how a person decides to invest in their future, some attention and effort needs to be given to it.
Savings vs. Investing
There is a place for both in all investment plans.
The following is the approach I like to take:
Invest for long-term wealth (I like investing +25% of gross income into assets AFTER the emergency fund is in place)
Save for short-term expenses (think 5 years or less)
So, first, after the emergency fund, we invest 25% of our gross income into assets. Then, after that threshold is met, if we want to stash money away for holidays, vacations, down payments, or other expenses, we put that cash into a savings account guilt-free.
NOTE: This simple equation is not taking into account debt repayment. If you have debt, this is a great resource to look at when getting into investing.
Keep Things Simple
There you have it. The big takeaway: Save for short-term expenses; invest for long-term wealth.
If you can keep those things in mind, and don't confuse money in your bank savings account as a retirement plan, you are in a good place.
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