Principle #3: Saving is actually delayed spending

What does this mean exactly? At Money Mastery we teach that there is actually no such thing as “savings” and that all money is to be spent—what matters most is when and how you spend it. Allocating money to savings is actually “spending” money by putting it aside to use at a later date for necessary needs and wants. Because your money is going to be entirely used up at some point, it is important to understand the concept of “delayed spending” so that you can be sure all of it will be spent in a way that will bring you and your loved ones the most satisfaction and happiness. You can begin to look at savings as delayed spending by tracking your money as we have already encouraged you to do. This will get your spending under control, which in turn will lead you to find more money. 

This is good. But it is not the end result! Now your focus must be turned to the future and what you are going to do with the new found money. Usually what people do once they see that controlling spending brings in a surplus of funds is to consume that extra money the minute they get it. This is wrong! What they should do is put this money away for “future spending” so it will be available later when it is needed. Unfortunately, most people do not understand the importance of this concept. Instead, they are seduced into believing the notion perpetuated by a consumer-oriented society that they can have everything they want right now and everything they need and want later. The actual truth is that if we want to spend all our money on consumable goods and high-interest credit card purchases, then we cannot assume we will have much of anything we will want in the future, including a financially secure retirement. At some point we all have to make a choice: We can either prioritize the way we spend our money so that we will be prepared for the future or we can recklessly spend every extra penny and have nothing for the future. Bear in mind: You can have anything you want, you just can’t have everything you want. People who understand this concept know how to prioritize their money so that they will be able to have the things they want and need right now, as well as what they will need and want in the future. This often requires them to sacrifice in one area of spending so that they can have what is necessary in another area. For example, a man may feel that taking his wife and children out to eat twice a week is an important family activity. It’s perfectly fine for this man to use his money this way if he wishes but he must also realize that he may have to cut down on groceries, entertainment, or other items if he wants to have extra money available to spend on eating out and for the future. Perhaps eating out isn’t as important to you as buying a new outfit every month. 

Naturally, the choice is up to you. However, the key is that you must make a choice because it’s impossible to have everything. As simple as this might sound, we are amazed by the number of people who somehow believe that they can buy a new outfit every month, for example, and eat out as well when they have no way of paying for both. This kind of behavior not only keeps people in a cycle of perpetual overspending, but it also eliminates all possibility of seeing money grow in value over time. Now is the time for you to decide what is important and what is not, and then spend money according to those desires and not according to the notion that you don’t have to make a choice at all. To help you make those decisions, we asked you in Chapter 2 to create spending categories for such things as groceries, entertainment, and house payments. With these spending categories in place, you can see exactly where you spend money, what your priorities are, and what you truly value. To have the things you want right now (like the new outfit), and still be able to have what you need in the future (comfortable retirement), you may have to prioritize your spending by cutting down in some categories. Doing so will help you use your money more wisely, which in turn will lead you to find surplus funds. The next step is to prioritize the spending of these surplus funds by creating additional categories that will be used for “delayed” or “future” spending. Most people call these categories “savings accounts,” but these savings categories should be viewed no differently than any other category in which you allocate funds for the month. You must learn to “spend” money for savings just as you would spend money for groceries. Remember: Saving is actually “delayed spending.” To help you learn how to create these “delayed spending” categories, take a look at the pie chart on the right. 

Notice that it is divided into three categories: Emergency, Emotional, and Long Term (Investments). Each section of the chart represents a percentage of money that you should be “spending” for emergencies, emotional needs, and long-term retirement. We have learned that at the very least, a person should save 10 percent of his gross income throughout his life in order to create a money-making machine that will generate the in- come he will need as he grows older. Even though the ultimate goal is saving at least 10 percent of your monthly income, if you are not already doing that, we suggest beginning with just 1 percent. We have found that anybody can save 1 percent. Some of our clients do not believe this initially, but as they track their money and learn to control it, every single client finds at least 1 percent they are wasting that can be “spent” into saving categories. For example, if a person makes a gross annual income of $30,000, then saving 1 percent would require finding $25 each month that can be spent into savings. Is it likely that a person will find $25 they have been wasting? Absolutely! We guarantee that if you aren’t already saving some percent- age of your monthly income, that by tracking your spending you can find at least 1 percent that you’ve been using unwisely elsewhere. Once you have found that 1 percent, commit a portion of it to the three savings categories we outlined in the pie chart using the 60/20/20 rule: 20 percent for emergencies, 20 percent for emotional needs, and 60 percent for long- term investments. Following is an example of how to spend that 1 percent using the 60/20/ 20 rule: Let’s suppose that Hayden and Rose have a combined gross monthly income of $6,000. After tracking their spending, they find an extra $60 a month (or 1 percent of their gross monthly income) that they can use for delayed spending. Using

Principle 3, we suggest that Hayden and Rose do the following:

 • Emergency Spending: Deposit $12 per month (which is 20 per- cent of $60) into a low-risk fund such as a certificate of deposit, money market account, utility stocks, and so on.
• Emotional Spending: Deposit $12 per month (which is 20 per- cent of $60) into any type of savings or investment account.
• Long-term Investments: Deposit $36 per month (which is 60 percent of $60) into any long-term retirement account such as 401(k), Roth IRA, and so on. As Hayden and Rose see their money grow in each of these savings categories, their confidence will increase and their ability to manage and control their finances will be enhanced. This will help them realize that it is easy to begin saving 2 percent, then 3, and then 10 percent. With time, and as you implement the Money Mastery principles you are learning in this book, it will be totally possible for you to save at least 10 percent every month. Now that we have established the importance of setting aside a certain percentage of income for future, or “delayed” spending, let’s examine the significance of each of the emergency, emotional, and long-term categories.

 Emotional Spending
We have already discussed at length that money is more about emotions than it is about math, so it goes without saying that we will often spend money for purely emotional reasons. This, in and of itself, is not a bad thing. It is simply something we should plan for, especially in today’s product- oriented society where we are often enticed to make impulse purchases. We have found over the years in working with our clients that people spend money whether they have it or not. Saving money for emotional spending takes into consideration that there are many times we need to spend money for reasons that go beyond the categories we have assigned for basic daily survival. Tracking your money will help you balance your spending to your income, but it will not be enough when an emotional event occurs. You must put aside even more money into an “emotional spending account” so that you will be prepared when these events arise. Remember, you can have anything you want, you just can’t have everything you want—and that means you must learn to prioritize your spending so that you can fulfill your emotional needs without jeopardizing the future. What are some of the emotional needs for which you should be saving? 

Typically these include such things as family vacations, holidays, or new recreational vehicles. Some people use their emotional spending money to purchase clothing for a special occasion, to buy novelty decor for their home, or to treat a family member with a surprise gift or getaway. Whatever the money is used for, it is important that it be spent on something fun, and not for routine, daily sustenance. If you are married, emotional money should be spent on your family and not someone outside the household. Have you ever had these kind of conversations with yourself?

 • “I work hard for my money and I owe myself these new clothes!” 

• “Why shouldn’t I splurge to buy all these beautiful flowers for my garden? It’s the one thing that brings me pleasure.” 

• “I never buy myself anything. I’m always spending money on the kids. I want this new DVD player and I’m getting it now.” 

Wouldn’t it be wonderful if you could meet your emotional needs when these kinds of desires pop up by dipping into your emotional spending ac- count? 

Wouldn’t it make you feel sensational to spend money for these needs when you’ve actually put it aside expressly for that purpose? Preparing for the need to spend money for purely emotional reasons eliminates reckless spending of the money that has been set aside for daily survival or for long-term investments. It helps curb debt, and it brings wonderful psychological rewards into your life and the lives of your family members. For those who don’t overspend but constantly deprive themselves and their family members of those things that would help build lasting family memories and close emotional ties to loved ones, emotional spending can be a lifesaver. It gives these people exhausted by the daily struggle for survival a chance to play, relax, and enjoy themselves a little bit when they would not otherwise feel justified in doing so. The only time it is not proper to spend money for emotional wants is when you have not planned for them or allocated funds for that purpose. 

Otherwise, it is totally appropriate to set aside money for the sheer purpose of providing pleasure to you and your family members. Doing so will give you a sense of peace and satisfaction and eliminate the guilt feelings that come from spending money on emotional impulse purchases when you have not planned adequately for them. Now let’s meet a family that learned the value of saving money for emotional needs and see how they were rewarded for their self-discipline.