Save some money for a rainy day. This advice is given both in business and personal finance. While I don’t disagree with the logic there’s clearly some sort of disconnect between the intended message and the message people receive when they hear this. At least, based on the uptake of this advice by people. Perhaps we do need to change the thinking around saving. Perhaps we shouldn’t think of it as saving for a rainy day but think of it as something else instead.
Regular readers here would be right if they started thinking that saving was one of our favourite personal finance topics. Saving is the most fundamental concept of getting your finances right. The saving we are referring to here is in two parts. The first part is spending less than you earn and thereby having some excess cash. The second part of saving is putting that money away in a safe place where it is easily accessible when required. This need not be a place where the money grows (ie investment) but it can be so long as it passes the test of no risk of loss and ease of accessibility.
The problem, to quote Dr Stephen Covey, is the way you see the problem. The sentiments around saving are that it will never make you rich or that it doesn’t grow your money. The thinking here is that money should grow or at the very least if you’re going to park money then you should get rewarded for it and handsomely. Then come the passive income heretics who not only demand handsome but astronomical rewards on money. This crowd has to lead to believe that unless your money is growing you are losing out. You cannot of course lose something you never had. The appropriate term is opportunity cost. A dollar saved, is still a dollar. Is that a bad thing?
The other problem with the rainy days thinking is the rainy days. People don’t really like to think about bad times or the possibility of them. The thought of hard times and what it would mean to go through them is upsetting to many. The thought of just how drastic things can get in hard times is downright off-putting for most if not all. Generally people are motivated by other moving towards pleasure or moving away from pain. And while it makes sense that thinking about saving for a rainy day is moving away from pain, not thinking about the rainy day is another way to avoid pain. A much easier one if we’re being fair. So what you have is a situation where thinking about the rainy days isn’t a pleasant experience and something people would rather avoid.
It’s funny then how we hear about people starting businesses both small one and billion dollar enterprises from their savings. Of course the size of the savings are different but the fact is people start things from their savings. Perhaps this is the paradigm shift that saving needs. Want to move to a new country or city? Save for that. Want to start a side hustle, business or non-profit project? Save for that! If want to do a bit of travelling, save for that! Instead of looking at saving as something we do for an unspecified rainy day save for a purpose. That way, your dollar will still be a dollar but its a dollar closer to your dream.
Saving with purpose
So don’t save for a rainy day, save with purpose. I realise this statement puts emergency funds into question. Before you think I’m contradicting that remember the ability to go 3 – 6 months without an income is a purpose to. We’ve spoken before about things to do with the money you save and we still stand by those ideas.
To close, ideas work best when they work for you so don’t be afraid to make them your own. Do it your way in a way that works for you. Just don’t go against any tested principles in the process.