Rules Around Saving Money (and where NOT to save it)

Rules Around Saving Money (and where NOT to save it)

Oct 31, 2022

Clay Raterman

There are only 3 reasons to "save" money:

  1. Emergency Fund - have 3, 6, or 12 months of Avg. Monthly Expenses saved for emergencies. (depending on risk tolerance, family, etc.)

  2. You are saving for a big purchase or have a goal to buy something and need to have cash set aside for that. (house, car, vacation, etc.)

  3. You are saving money for a specific investment you’re looking to make (or are waiting to deploy it in the right opportunity at the right time). *careful, this one's often an excuse*

Anything outside of this and you’re likely holding too much cash for no reason and simply losing money to inflation.

Note: you don’t save money for retirement, you invest money for retirement - there is a huge difference here.

Why do people hoard savings in a bank account?

The reason most people keep their money in a savings account is because of the ILLUSION of security. They also want it to be liquid, meaning if they need the money they feel comfortable because it's immediately spendable.

Inflation is the sneakiest tax on any population. The real inflation rates are sometimes even higher than what is stated publically and reported upon (it's hard to calculate).

Just be careful falling into the trap of having too much money in emergency funds. Safe investments you make with your money CAN still be very liquid and quickly accessed if needed. They can also be put into things like "i-bonds" that protect against inflation.

For example, there are certain Treasury bills you could purchase that I personally feel are safer than holding money in a bank account. They earn higher interest rates and are still relatively liquid (you can take up to ~80% loan to value against them). So if you just treated these as a different form of "bank account" you'd get a similar result that's not FDIC insured only up to 250k.

The craziest part is - this is what banks do! They're loaning out your money as is, you might as well loan it to the government yourself and get the full benefit.

Which is safer? I mean honestly ask yourself, is it more likely a bank goes under (like they have before) or the US government goes under and can't pay it back?

Why is saving important?

Saving money (to use to invest with) is important because for every dollar earned and kept, you need to go earn $1.30 to get that same dollar back due to taxes.

One of my favorite quotes is "Wealth is a ratio, not a number".

This is a good framework to think about money in. Wealth is the ratio between how much you spend and how much you earn...

If you make $100 and spend $100 you're broke. Yes, there are other factors like the time frame in which you earn and spend money as well as WHAT you spend on. For example, investing in assets that produce cash flow would be a productive way to "spend" the money as opposed to buying Gucci flip flops.

Where should you try to save money?

Skimping on the coffee doesn’t really make a big impact on your finances.

The main thing to focus on as you start earning more money is your margins → lifestyle creep is the biggest reason why people who are making more money aren’t getting closer to freedom faster.

If you’re looking to reduce expenses and “save money” you want to tackle those savings by looking into reducing the BIG numbers by little %’s, not the little numbers by big %’s:

  • Rent or Mortgage Reductions

  • Vehicle Payments (and insurance costs)

  • Travel

  • Materialistic Spending

  • Eating out or drinking

  • Subscriptions

Where should you NOT save money?

Saving money and budgeting are great tools to help keep your finances in order. But these are typically one-time cuts you make every now and then when doable, otherwise, it’s much more important to focus on increasing your earning power.

With that said, when you are LOOKING to save money, you should always aim to cut costs where it doesn't affect your health.

Paying more money for healthy foods, working out, sleeping well, and living in a safe and conducive environment is almost always a wise investment.

Instead, skip the BMW when you're getting started & ensure your money is going back into making yourself a healthier, happier, and stronger human!


That's all I have for you on saving money! Go make the appropriate adjustments, invest when and where you can, and most importantly take care of yourself.


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