Hi Reader!

What is savings? It seems like a simple question. People often see savings as the money that they’ve saved in their savings account. But is that the whole story?

When people have one lump of money labeled "Savings," it tends to create one of two problems:

Some will look at savings as a general fund. If there's money there, it must be available, so it gets tapped for almost anything. Savings never builds up and isn’t there when you actually need it. When money is for nothing, it becomes money for anything.

Others go the opposite direction and feel paralyzed. After working so hard to build savings up, any spending can feel scary. What counts as an emergency? When is it ok to dip in? As a result, money isn’t spent even when they should, and debt quietly builds up. When savings has no goal, then the goal becomes protecting the number itself.

Both problems have the same solution: Define Your Savings.

Instead of one account holding everything, separate your savings, give each piece a purpose, and give it a name.

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​Separation gives it protection.

Putting your savings into separate savings accounts (or buckets within a single account) clearly identifies what is available for each account. It keeps money from being used for one purpose when it's meant for something else.

Purpose gives it rules.

A purpose tells you how much to contribute and when it's okay to spend. You don’t have to second-guess how much of your savings you can spend on a new oven if you have a ‘Home Maintenance’ account ready for exactly that.

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​Naming gives it value.

Research shows that giving a name to something increases its value. Naming your savings makes you want to save more money towards your goals and to project those goals. The more specific, the better: ‘Our Italy Trip’ is more powerful than just ‘Vacation’.

Knowing what you're saving for is the most effective way to save more and spend without guilt. If you've been staring at one big savings number and feeling either too free or too frozen, try splitting it up. You might be surprised how quickly your relationship with that money changes.

Next newsletter, the final budgeting puzzle piece: timing. What are the three types of bill timings, and how to build a budget that can handle all of them?

Want to find ways to make saving easier? Schedule a FREE Penny for Your Thoughts Q&A Call​

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Remember, small change adds up. Step by step and penny by penny, we’re building a better life. Have a shiny day!

Laura

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