Exploring the save/invest scale, teaching, and money fear

Welcome to the Intentional Dollar weekly newsletter — great work taking this small step to move your money forward. I’m Logan, a Certified Financial Planner™, and I’m excited you’re here!

What’s inside?

• One tool to experiment with

• Two quotes from others

• Three questions to dig deeper

• Four lines of poetry for the point

_{One tool to experiment with:}

The Save/Invest Scale:

How do you balance saving and investing?

Let’s first start by segmenting and defining the two, and then figuring out the ideal balance — with some important notes at the end.

Why do we save?

We save to accumulate sufficient cash to fund our future wants, needs, and emergencies. We save for a down payment on a home, we save for a vacation, we save for a car, and we save for an unexpected expense.

Savings accounts house these dollars that eventually fund the things we can’t currently cover with cash flow. I can buy a Starbucks pumpkin cream cold brew with my biweekly check, but (unfortunately) not a new car. To acquire the new car, I need to take pieces of a lot of checks and stitch them together to have enough to cover the purchase, assuming I don’t finance it.

Those are the elemental principles of saving.

Investing is the process of (hopefully) supercharging our savings; to use the market to shoulder the burden of building cash for future wants, needs, and emergencies. Our investments attempt to beat the rate of return on savings accounts to expand our dollars more productively. The tradeoff? We have to wait longer for these returns to materialize, and they come with a higher risk of loss. As a rule, anything that offers a better return than savings interest rates comes with more risk, or restriction (which are variants of risk), than a liquid savings account.

The reason we don’t invest the cash in our emergency funds is that we don’t want to take the risk of loss from an investment, should we need the funds at an inopportune time. Investing is ultimately the process of matching the time horizons of our financial goals to the vehicles with the best chance to generate the dollars for those goals.

Those are the elemental principles behind investing.

Saving and investing are tremendously important, but how much should we save, and how much should we invest?

The target I like to set for total saving and investing is 25% of gross income: 10% should go toward savings and 15% toward investments.

With current interest rates, the 10% that you save should go directly into a high yield savings account (HYSA) — out of sight, out of mind. You can open additional HYSAs and name them for your goals, (travel, car, home, financial safety net) if you like the mental accounting aspect of saving. Note: HYSAs have monthly withdrawal limits, but this should not be a risk factor as these are saving, not checking accounts.

Investing 15% on top of the 10% saving target might seem overwhelming; however, the 15% target includes your employer match. These matches alleviate a chunk of your retirement saving burden — so take advantage of it — it’s one of the most important choices you can make financially.

Depending on your situation, you might split the 15% into Roth IRAs, brokerage accounts, HSAs, or other common investment accounts — it does not all need to be in your employer retirement plan.

Striking the right balance between saving and investing is important. By sticking to these guidelines, you’ll build a robust retirement portfolio, while having adequate cash for life along the way.

Notes:

• If you don’t have an emergency fund, focus on building the 3-6 month reserve first. The only investment funding while building this reserve should be in an employer retirement account, up to the full match (we don’t miss out on 100% returns) — not the full 15%.

• How to think about bonus “surprise” income: save 30 cents per dollar, invest 45 cents per dollar — guilt free spending on the rest. This assumes you have no high interest credit card debt. If you have high interest debt, that is your priority. Bonuses often get spent, but are a great tool to quickly advance your financial position.

• Reach out if you have questions based on your unique scenario, [email protected] 

_{Two quotes on teaching:}

One of the best ways to learn a topic is to teach it. Teaching forces compression of ideas and clear communication to your audience.

_{Three questions on money fear:}

1. What is the worst case financial scenario if I make this decision?

2. Given that the worst case scenario is unlikely to occur, what scenarios are most likely?

3. What financial decisions are you avoiding out of fear — what’s it costing you financially/non-financially?

Which question stuck with you? Questions like these are spotlights for the mind. Reply to this email and let me know which one shined light on a previously dark cave.

_{Four lines of poetry for the point:}

Contact Me:

Content ideas, questions? Reply to this email or reach out to me at [email protected]