Do you ever feel like no matter how hard you try, it’s next to impossible to save money? You try to spend less and put money away, but something almost always comes up. Your car needs new tires, you went over on groceries, your kids have a sporting event — and just like that, saving money takes a back seat.
But while the topic of savings can be intimidating, you don’t need everything to line up perfectly before you save money. You can start by asking yourself these two simple questions: how should I save money, and where should I save money?
In this episode, Dylan talks about savings and offers four key tips for saving money and breathing some fresh air into your budget.
- [02:12] The importance of savings
- [06:56] The three key phases of your financial life
- [09:03] Four things you need to do if you’re in the savings phase
- [10:17] What is a “bullshit” fund?
- [11:59] Three schools of thought on how much money to save for an emergency
- [18:11] Why savings should start with a short-term goal
- [22:21] Why you should continue to save after paying off future expenses
- [23:10] The first place you should save money
- [26:01] The second place you should save money
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[00:00:00] Intro: Forget the civilized path. It’s time to break the chains of debt and dependency, take control of our financial lives, and live free. This is the Fiscally Savage Podcast.
[00:00:15] Dylan Bain: Hello and welcome to Fiscally Savage. I’m your host, Dylan Bain. And today, I want to tell you about what it was like when I first started budgeting and how frustrating it was. And I’ve shared on the show before that when I decided that my financial house was in disarray and I had to get control of my finances, that it took me nine months before I came close to having a month where my expenses actually were reflected on my budget. And one of the most soul-crushing parts of that experience to me was not the repeated failures — that I had expected and anticipated and already made my peace that the path of success would be paved with my failures along the way. No. It was the fact that there were all these things that continued to knock me off that path that I’ve really started to feel like I didn’t have control of them. That’s because the things that were blowing my budget weren’t the things in my direct control, like where I was going to eat and what I was spending on food and how much I was spending on clothes or how much we had the electricity on. No. I had those things locked down. It was the fact that life is lumpy. And with life being lumpy, it meant that I had all these unexpected expenses. It is a known thing in the United States that to be poor is to be really expensive. And I was, ladies and gentlemen, very poor despite having a full-time job with two additional jobs and welfare support. And so when my car had a flat tire, having to replace all four tires really set me back. And when my daughter got sick and had to go to the emergency room, it really set me back. And when my wife was in a horrible accident, well, I walked a lot and I started to ask myself like how is this even possible when all of these things continue to come out of nowhere and knock me off my path?
[00:02:12] Now, ladies and gentlemen, I tell that story because this, today’s topic, we’re gonna be talking about how to save. And it really is the cushion. It’s the bumper on the car of your life. And it can be an intimidating topic for some people, and I want you to know that I feel you. I know exactly how you feel. I’ve been right there, and I found a way out. I found a way to deal with the fact that life is lumpy. And when I look at the United States as a total whole — and for my international listeners, I’m based in the United States — and I look out and I see things and I understand that things like 61% of Americans can’t cover a $1,000 expense. They just don’t have the cash. They’d have to borrow and go into debt and put themselves into a worse financial situation in order to cover it. And for you listening, I want you to think about that right now of what your upper bound would be in terms of the cash you have available to you in order to deal with an unexpected expense.
[00:03:19] So for example, I know to replace all four tires on my car would cost me $750. And do I have the cash for it? Well, okay. Yes. Now, if I had to replace the car, could I replace the car? And even if I bought a used car, a used car in the market right now if I was to try to buy an equivalent car is gonna run me at least 12 grand. So do I have 12 grand in cash ready to go if my car were to throw a belt right now and the engine were to fuse together due to catastrophic failure and now my car of which I live in the United States so I’m completely dependent on it for my economic viability, could I replace it? Now, yes, I have access to credit. I could go down and there is tons of car people who would love to give me a loan. But that’s not the question. The question is could I cover the expense? Could you cover the expense? And if you’re looking at your vehicle and going, well, I mean, but Dylan, you drive a Nissan and I’m driving this really expensive Porsche SUV, well, hey, like this is a good conversation to be having. If you lost that car, could you replace it? And I think the answer for a lot of us is no.
[00:04:28] When we look at the state of play, it’s a shocking thing to say 61% of Americans couldn’t cover a thousand-dollar cash expense. But the question is how much of an expense could you actually cover? And how much do you need to be able to cover to sleep at night? Because let’s face it. When my wife got into her accident, it wasn’t the car I was worried about. It was her and my unborn child she was carrying at the time. And in terms of what it took me to replace the car paled in comparison to the medical bills of just transporting her from the accident site to the hospital. And I didn’t have the money to cover it because I was poor. I made just enough money that I didn’t have access to things like Medicaid, but I didn’t have enough money to have actual health insurance.
[00:05:12] And so when we look at these types of things, the question for you is what is your risk tolerance and how much savings do you actually need? But then, there’s also the understanding that 58-78% of Americans — and these are fuzzy numbers — are living paycheck to paycheck, which means that they are completely dependent on their jobs. And if that job were to go away, it would become an existential threat to them because losing your job unexpectedly, whether by layoff or being fired, is at least on a somatic level — it’s how your body processes that shock — is very similar to receiving the news that someone you care about has passed. It’s an existential threat to your own survival because you’re living paycheck to paycheck.
[00:05:56] And so when I’m looking at this and I’m comparing it to my old situation and being like man, I remember what that was like. I didn’t sleep well at night. I maybe drank a little bit too much because of the stress. And here I am, saying, yes, I’ve got a way that we can work our way out of it. And I’m just one voice in a chorus of voices. There are plenty of people. If you were to Google search right now, “How much money should I have for an emergency fund?” you’re gonna get a bunch of articles going, well, you should have three to six months in savings and cash and a savings account. And then, you got other people going three to six months isn’t enough. You should have at least nine, possibly 12. And then, you have the fact that anywhere from 58-78% of Americans are living paycheck to paycheck, which means saving isn’t a thing that they can actually do, and that advice is useless. And it’s overwhelming because you’re looking at it and being like, well, I, you know, maybe I’m making a hundred grand a year, and if I wanted to save six months of my income, I’d have to have 50 grand and I can’t even save for a thousand-dollar expense. That’s really hard.
[00:06:56] And this is why at the top of the show, if we’re talking about savings, it’s important for us to understand that your financial life will happen in three phases. The first phase is increasing income. So if you are in that cohort where you are living paycheck to paycheck and you can’t cover a thousand-dollar expense, your job is not to worry about saving or investing or retirement or healthcare plans or anything like that. Your sole job is to increase your income. The income level that you have is the single greatest predictor and the single greatest influence on how much wealth you can create and maintain in your lifetime. It’s like Oscar Wilde said: “To recommend thrift to the poor is both grotesque and insulting. It is like advising a man who is starving to just eat less.”
[00:07:48] And so today, ladies and gentlemen, we’re gonna get talking about savings. But I do want to emphasize this point that if you’re listening to this and you’re like, well, I don’t have the capacity to save and you know that your budget life is already taken care of, that you’re already running that part of your life to the best of your absolute abilities, well, then, you’re not in a savings place. You’re in the first stage of your financial life, which is increasing your income. Step two is savings, which is where most of us will eventually get to and most of us will end the whole game still in this phase because step three is called investing, although I don’t particularly care for that term. But you hit that phase when the bulk of your income is coming from the financial assets that you have accumulated over your life and your focus is on maintaining and managing that portfolio. I’m not there yet, and the vast majority of people that I know are not there yet, and the vast majority of Americans will never actually get there. They’re only gonna end up in the savings, if they can get to that stage at all. So, dear listener, if you are listening to this and going, oh, I can’t save, like just understand that there are those three phases to life. But if you can save, how should you save? Where should you save? Let’s start with that conversation.
[00:09:03] Now, if you were in a situation, if you’ve hit the savings part of your life, there are basically four things that you should be doing in terms of how you are thinking about building your savings. And I’m gonna be talking specifically today about cash. Retirement savings are a part of this game, but that’s gonna be a completely separate podcast. Look for that next week. But for right now, we’re gonna talk about cash savings. These are the savings that you hold in cash for short-term expenses. Basically, a good rule of thumb is that anything that’s going to be spent in the next 12 months should be held in cash, not necessarily invested somewhere or squirreled away for a long-term savings like retirement funds are.
[00:09:43] So if you can save, step number one would be start a bullshit fund. Now, when I say “bullshit fund,” that’s because life has a lot of bullshit to throw at you, and that’s what I started calling it. It was my bullshit fund. And in that, my target was a thousand dollars. I wanted a thousand dollars. And why did I choose a thousand dollars? Because it’s a nice round number that’s greater than a hundred. And so I chose a thousand. It’s arbitrary. Your bullshit fund might be bigger. If you have a much larger family than me, you might be wanting to have more cash on hand.
[00:10:17] But what do I mean for a bullshit fund, and why is it that we call it that? This is the fund that you do things like pay for the tires when the tires go flat. And I brought — this is now the third time I brought it up on this episode and you can kind of tell. The tires thing happened to me with frightening regularity when I was poor. And even now that I’ve moved from that state into a much better state, I still have a tendency to pick up nails like they’re magnetically attracted to my car tires. That’s what I mean by a bullshit fund. That, ladies and gentlemen, is bullshit. But when it happens, I don’t get upset about it because I have the money already there. And your bullshit fund covers any of those other expenses. Oh my God, my kid’s got this sporting event. Okay, I’ve got this money. Oh, there was a, you know, we went over on groceries. Oh, I forgot that I had a birthday coming. These things that just pop up out of life. And if you don’t have that on hand, it’s going to just be really stressful. And so this is step one, just to have a thousand dollars in cash in a savings account somewhere that you can get real quick access to to handle the fact that life is lumpy. And I like to label it my bullshit fund. Now, some people will say, well, like, well, what happens if I spend it? Well, then, you know, obviously you save it back up. And this is just this thing. Like when I’m looking at my personal balance sheet inside of my savings account, there is just a thousand dollars sitting there that’s labeled “bullshit.”
[00:11:44] Okay. So then number two is understand your risk tolerance. Once you have your bullshit fund established, you should be saving for other things, and we’re gonna get to that here in a second. But before you start going off, you should understand where your risk tolerance is.
[00:11:59] Basically, if you were to Google search “How to save for an emergency,” you’re going to find basically three schools of thought on this. The first one is cash is king. That is, I wanna have things in a high-yield savings account, which is fundamentally different than the one you have at your bank. I wanna have my money in a high-yield savings account. It’s in cash. It’s liquid. It’s ready to go. Now, the pros to this is that it’s highly liquid, it’s highly stable, and it is FDIC-insured. The cons to it is the interest rate you’re gonna get in that type of cash account will never keep up with inflation, which is why there’s that second camp.
[00:12:36] The second camp will say, well, once you have maybe one month’s worth of expenses sitting in a high-yield savings account, all rest of your savings should go into a taxable investment fund. Now, remember this is different than the investing phase of your financial life. The retirement savings, which would then be invested in the market, those things? Those are parts of your savings. Investing part of your life is when you’re managing portfolios, which we’re not getting into. So the idea here would be that you would go to a company, you’d open up a brokerage account, and then any savings beyond that of your bullshit fund, they go into the market. And the idea here is, well, yeah, it’s gonna be more volatile, but I’m gonna get a return that’s going to at least keep up with inflation in theory over the long run and my returns are gonna be far better, so why wouldn’t I have that rather than locking cash up? So the pros to this is you’re probably going to get a better rate of return than you are in a high-yield savings account. The downside though is that you’re going to go for a ride. Markets are volatile because risk is involved. And it’s great when you watch the, you know, the line go up, but it’s not so great when everybody and their brother is screaming head for the hills and, you know, the line is starting to go down. When you’re in this type of savings vehicle, it’s highly likely that the moment you need to cash out is the same moment it’s gonna be at its lowest point. So again, you might, you know, this is about understanding your risk tolerance. You might look at that and go, “That’s fine with me.” And for someone like myself, well, you know, some of my savings actually exist in an investment fund. But I’m actually not that risk-seeking, so a lot more is in cash.
[00:14:16] The third school of thought is one that I struggle with a lot because I see their point and I understand that this is a case in which the mathematics makes sense. And that is you don’t need cash; you need access to cash. Or these are the line of credit bros. The line of credit bros say, well, once you have some home equity, get a home equity line of credit on your house and use that as your savings vehicle. And you do that because I wanna take my cash and I want to just max out all of my retirement accounts. But in an emergency, I would have this line of credit secured against my home and I can draw on that whenever I need to and then get access to cash, which is the thing I actually need. Now, for my money, ladies and gentlemen, what I would be telling you here is that’s the advanced class. Once you have fixed everything else in your life, once you have established a really solid savings, you’re maxing out retirement accounts, you’ve got your budget on lock and you’re hitting your numbers every month, well, then let’s have a conversation about this. But this is a really good way to get yourself into a lot of trouble really quickly and end up in foreclosure if you do it wrong. If you do it right, I mean, this is again a case where the math really just points out that this is probably the best, most efficient way to do this. But it’s also got a lot of arts and crafts, many of which are going to be laborious to manage if you don’t know what you’re doing. And let’s face it, a lot of us don’t know what we’re doing.
[00:15:45] The second part of your risk tolerance that is beyond whether I’m gonna do cash investment or a line of credits is how much do I need to save? The old advice of you need three to six months came from the idea that if you had job loss, you would be able to find another job within three months — six months if it was a really tight market. The problem is is that that shit ain’t true anymore. The average length of time to go from application to acceptance in a job in the United States is four and a half months for the upper end of the job-searching population. The typical amount of time somebody spends unemployed after a sudden loss of employment is anywhere from six to nine months. And so that’s where you’ll see new articles saying, well, given how, you know, most companies now require you to do 45 different interviews, half of ’em with machines, one of them with a penguin, and then you have to do the Hokey Pokey and turn yourself around, and then maybe they’ll talk to you with a live person and blah, blah, blah, blah, blah. HR departments have made, you know, hiring practices a living hell and a dehumanizing experience because of course they have. That’s what industrialization does. But I digress. The point being here is that’s why those articles are starting to say you need to have nine to 12 months of savings instead of the three to six that our grandparents were able to get away with.
[00:17:05] But this comes down to your risk tolerance. If you’re somebody who is risk-seeking, you might say, well, no, I’m gonna run the risk of having less savings in order to be able to invest more or do more with my money, like buying properties or, you know, living it up or whatever. But you’re running a risk. You might be risk-avoidant in which you’ll say, no, I actually want 12 months worth of cash. I want my whole salary saved in a savings account ready to go just in case I need it. Between those two extremes is where most of us are gonna find there. But understand that one side is risk-seeking and the other side is risk-avoidant, and you need to know where you fall on that. Me? I’m like right in the middle. I’m like right in the middle on all of these things because I can do a lot of different math and my temperament is really not to take big swings or to just hide. It’s really just to stay in the middle and continue to play the game. But you have to understand what your risk tolerance is. And if you wanna compare it to something that we’re seeing right now, banks do this same thing, and the banks that were risk-seeking are the ones that are collapsing right now.
[00:18:11] Okay. So number one was start a bullshit fund. Number two is understand your risk tolerance. Number three is you pick a short-term goal. The standard advice of three to six months is a huge number. Like we as humans have a hard time tackling large, long-term problems because we’re not actually programmed to do it. And so we have to kind of play our own psychological game here. And the way that you can actually get to having three to six months or more in savings is to pick a small goal. Pick something that seems eminently achievable, almost laughable to be doing, like saving your water bill. Like you just say, you know what? I’m gonna save one year of my water bill because then no matter what happens, they might shut my lights off. I might lose my job. I might go into foreclosure. But the water? The water’s gonna stay on because I’ve saved 12 months for it. And just accomplish that, and then celebrate your win. And it’s very small. So if you’re looking at it, you’re like, oh, my water bill’s a hundred dollars a month. Okay, well, you need to get $1,200. That means your total savings is gonna be $2,200 ’cause you got $1,000 in your bullshit fund and $1,200 because you’ve pre-paid a year of your water bill to yourself that you’re now earning interest on. Now, once you have saved that water bill, pick another one, like your electric bill or your cell phone bill or your trash bill. It really doesn’t matter. But pick a short goal and then just try to accomplish that.
[00:19:39] So for me, I originally started going like, oh, I’m just gonna save the six months because I’m Dylan and I can be super disciplined. And it turns out, I’m still human despite my best efforts. And now, I just blew my goal. But once I started saying like, no, no, no. I’m gonna save my water bill, and that’s what I did. I literally started with the water, then electricity, then gas, then my cell phone, then car insurance, and so on. And eventually, I built it up until I’ve got like, oh, I’ve got four months worth of savings sitting right here ready to go if I ever needed it. And it’s four months of my total bills, which is a fair decent amount of money. So start small and pick a short goal and just work that system.
[00:20:24] Alright. And then number four. Number four is where people need to start being imaginative but not catastrophically imaginative. That is, figure out your future expenses and pay yourself first. And now, this is the thing that when I sit down with clients, clients come into the coaching practice, they wanna have one-on-one coaching with me. We’re gonna sit down and one of the questions I’m gonna ask them is what are your annual subscriptions that always seem to come out of nowhere in some random March week and blow your budget? And we’re gonna make a list and we’re gonna write them all down because now, they’re all known expenses.
[00:20:59] So some known expenses that you know might be coming are things like your car insurance payment. Car insurance can be paid in a big lump sum and you get a discount when you do that every six months. Well, I know that when I get to June, I’m gonna get a bill from my car insurance company. And so what I’ve been doing is I know about what that bill’s going to be. I took that amount, divide it by 12, and I pay myself into my savings account for my own car insurance payment. So when that bill comes, I’ve got all the cash right there ready to go. It’s a known future expense. The other thing, you know, that goes along with this is, well, I drive a car. Well, that car is going to need an oil change. That car is going to need new tires. That car is gonna need the transmission flushed. That car is going to need all sorts of maintenance. But I know that that’s all coming, so now I can pay little bits now into my savings account and pre-pay an expense. And even if your car is paid off, if you kept making the car payment, you’re pre-buying the vehicle so that you can replace your car in a time and a place of your choosing rather than the time and the place of the car’s choosing. And I’ve been there and we’ll talk about that here in a little bit, but that’s what you should be doing.
[00:22:21] And if you have extra money, and even if you’re like, well, I’ve got all my future expenses paid, then still save because what you’re doing is you’re paying for an expense you don’t know you have yet. Because I’m not — I can’t really give a whole lot of guarantees in this world, but I can guarantee that life is lumpy and that the things that are really gonna knock you off your stride are never the things you see. They’re the things that happen on some idle Tuesday while you’re chewing bubblegum and come outta nowhere. Those are the things that really send us for a loop. And having a financial cushion can help you in those situations, which is why you wanna follow these four steps. Number one: start a bullshit fund. Number two: understand your risk tolerance. Number three: pick short goals and accomplish them. Number four: figure out what your future expenses are going to be and pay yourself first.
[00:23:10] Now, I get people who come into the practice and they come for coaching and they say, okay, this is great. I’m totally bought in, Dylan. But where do I save? So there are basically two different ways you can save and there’s a third kicker on the back of this. But my standard advice is you should have a high-yield savings account. Now, high-yield savings accounts are typically at online institutions. There are some very big banks, like Citibank, Barclays Bank. I’m not recommending any of those but, you know, they are some organizations that I’ve worked with in the past. Very reputable organizations that have these high-yield savings account. A high-yield savings account is paying about 4% right now, which is pretty good compared to what you might get with the standard savings account at your bank.
[00:23:57] But here’s the key: you want your high-yield savings account the place where you put your bullshit fund, and you start pre-paying your expenses to be at a different bank. Again, we’re humans. Humans operate on emotions ’cause money is emotional. We need to start playing an emotional game. So when you’re looking at your checking account, which is where you pay for bills and all the different things that you enjoy in life, you wanna be able to look at just that number ’cause that’s the number you have to spend on those things. You want your savings to be someplace else because if you see the numbers together, nine times outta 10, you go, no, I’m fine. I can totally spend more than I actually have. People do this all the time. So a high-yield savings account at a different bank is my go-to suggestion for people when they ask me, “Hey, Dylan, where should I save?”
[00:24:45] Now, it’s really important because people will say, well, okay, you told me to save for my water bill, and then you told me to save for my electric bill. Do I need to have like a separate high-yield savings account for each one of those expenses? And the answer is no. So I run my high-yield savings account at one of the banks I’ve mentioned. And what I end up doing is that it just has one lump sum sitting in there. So from the bank’s perspective, I’ve got X amount of dollars sitting in there. But what I do on the side is I actually have a spreadsheet where I track what each one of those dollars is for. So like for example, like I said, I pay my car insurance to myself, so I pay the $200 or whatever it is into that high-yield savings account, and then I mark down, oh, $200 — car insurance, whatever. And so I know that of the X amount, Y of it is for car insurance and Z of it is for car maintenance and W of it is for, you know, some trip that we’re having in the future and so on and so forth. You don’t wanna have multiple high-yield savings account. You really only need like a checking account at one bank and a high-yield savings account at another bank. And that’s all the banking you really need to do for the vast majority of people. If you have business accounts, this is a little bit of a different situation.
[00:26:01] The other place — and this again goes back to knowing your risk tolerance — would be in a taxable account. And so it works basically the same way. Like you just have one taxable account and you put in $200 for car insurance and you gotta write that down. But now, that $200 is going to ride on the stock market. So you’re gonna have exposure to the market, which means you have exposure to a lot more volatility. Yes, you’ll probably end up with a higher return, but that’s certainly not guaranteed. And when you cash out, you’re gonna have tax consequences. You might have to pay capital gains tax if you cashed out at a high level or you might be creating a tax liability asset to move forward if you actually suffered a loss. And remember, if you choose the taxable account option, it is likely that you’ll have to cash in during a down period. But the principle more or less stays the same. It’s just a question of do you wanna have stability or do you wanna have the potential to get a bigger return?
[00:26:59] But it really doesn’t matter which one you choose. The key here is the KISS principle. Keep it simple, stupid. Like don’t try to overthink this. This is actually very straightforward. And one of the challenges I have for couples that come into the coaching practice who say, well, how do you do this? And I explain it to ’em and they go, it can’t be that easy. Well, it is because the easier it is, the more likely it is that you’ll do it. And my whole goal in financial coaching is to see you win. I want to see you be successful. And so if I can give you simple things, easy things to methodically create the inevitability of success in your life, that is the path I’m gonna coach you down.
[00:27:44] And our savings in our lives is so important because once you get through increasing your income and you hit that savings part of your life, you’re able to start creating financial cushions, which create a greater sense of serenity in your life, which helps you be able to sleep at night and show up more fully in every other aspect of your life.
[00:28:06] And I know exactly how that feels because after I had left teaching, I had dedicated myself to increasing my income. I had gone through graduate school, graduated top of my class, got that high-level elite job, and I started in on the industry. I was driving home one night on the highway from my client in the middle of our busiest time of the year when my tires locked up and I went into a screeching stop in the middle of the 101 in Phoenix, Arizona. My car had died. The transmission had locked up, and I was dead in the water. And I’m sitting there in the car, first thankful that I didn’t get hit, and then thankful that it was three o’clock in the morning so there were very few cars. And then, the panic set in as to how I was going to get home and then later get to work. And as I’m breathing my way through this, I just started to remind myself that I’d already paid for a new car. Because after I had got done paying off that Toyota Camry, I had kept making the car payment to myself. And so after I called the tow truck and I got home, I texted my boss and said I would be late. And I was able to walk in to the car dealership with a cashier’s check in hand and just buy the new car. That is what we want to build in our lives — the inevitability of success and the certainty that comes, knowing that you’ve already paid for expenses that you didn’t even know you had yet.
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