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Welcome to the pocket change investments podcast. I’m your host Basheer and today we’re going to talk about strategic short-term savings. Specifically, we’re going to talk about what is the difference between short-term savings and long-term savings, we’re going to touch on savings goals. And we’re also going to discuss tips on saving more money. So stay tuned, we got a lot of good tips and facts for you in this episode.
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Welcome to the pocket change investments podcast with your host Basheer Abdul-Malik, follow Bashir and pocket change investments at his website, www dot pocket change dot investments, and on Facebook and Twitter.
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Before we get started, I want to just set the ground rules, I am not going to tell you not to buy Starbucks, and in this episode, I am not going to tell you not to buy avocado toast, whatever you decide to do with your money is your priority. And that’s up to you. So what we’re going to do is I’m going to try and convince you to stop saving out of fear and to make saving money your new norm. And in order to do that, you have to realize that you have your whole life ahead of you to save and spend and invest. And that’s basically the three things you’re going to do with money. Once you get money, you can either save it, you can spend it or you can invest it and you have your whole life ahead of you to do it. But it’s always easier to start saving now than it is to start saving later because saving money is important. Just don’t let it get in the way of spending on things that you actually need and things that are actually important to you. And that last point is very important.
Because a lot of people once they get started saving, they don’t want to spend money and they become stingy or selfish or whatever you want to call it. But it doesn’t have to be that way. I mean, saving should be an automatic process, it should be easy. And it shouldn’t really be an inconvenience, you shouldn’t have to pick besides doing something you like, and saving money. I mean, that’s just not a feasible choice. Because if it was up to that, if it was up to the things that you need or like to do and saving money, I personally, I would always choose to do something that I like or something that I need, like paying rent, I’m not going to be late on my rent because I wanted to save money. And I don’t suggest that you do that either. But, um,
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so let’s rewind and go back real quick. So today’s episode is about strategic savings. So strategic savings is basically a short-term process, where you set the parameters and you set your goals. And that’s the difference between strategic savings and regular savings. And we all know about regular stays when people say save your money, you know, save for a rainy day and all of that dogma, all that stuff that people tell you, that really doesn’t mean anything. And the reason why I say it doesn’t mean anything is that when people tell you to save money, they don’t tell you, hey, save your money for this or save your money for you know, one year they just say save your money.
And without that extra insight without the perimeters of setting a savings goal or a timeline for your savings, you end up saving for a rainy day and nobody likes rainy days. If you knew a rainy day was coming, you probably should have taken your money and brought an umbrella. So my whole theory is that that doesn’t work. That’s an antiquated idea. I mean, if you are in the 1930s, and things are really, really bad, you just counted the depression, yes, save everything, you saved your breadcrumbs, save everything. But we’re not living in those times and the world has changed. So with strategic savings, the idea is to limit your savings to the short term.
And once you get your savings you can decide on what’s your what to do with them long term. So strategic savings takes place with n week, a month, a year. That is strategic statements where you set will you specifically say for the next year, I want to do this, that’s a strategy. And strategic savings is very highly tied down to goals. So when you save I believe that you should always save with a goal in mind. And within that goal, you can set many goals or you can just say I want to save $500 by February. And once you put that timeline on that goal, it makes it more real. And another thing about goals is, in order for goals to be legitimate, you have to have the who, what, when, where, and how.
And then you also have to tell somebody your goal so that they can hold you accountable. If you said you wanted to save $500, by February 15, 2021, you have your exact time date, you have your who that’s you, and you have what you’re going to save money, and you already have the amount. So that is a very specific goal. And the reason why specific goals are easy to save for is that you put a time limit, it’s kind of like you’re testing yourself to see if you can actually achieve this goal. And the best thing about goals is if you miss your goals, you can always reset the goal and try and make it work.
But for me for what I found, I like to go on vacations, I like to go on vacations that are out of the country. So I have to save for those things I’m not rich. For me. If it was a choice between me going out of the country, or me staying home and not going on vacation, or instead just go on a vacation, you know, and the United States, which I love, I’m going to make it happen. And that’s one thing I found about goals when you set a goal, it’s easier to achieve a goal than just a vague one, you know, I want to save more money.
And you know, the same thing happens with every year where people who you know want to lose weight or want to do, you know, get a raise or do this like that we have these grand ideas. And the only way that you can make it really come true and keep yourself on task is by creating a goal. So with a savings goal of saving $500 by February 15, 2021. That specific goal is easy to reach because you can actually be backdated and reverse engineer that goal and realize like, hey, if I want to do that I have to save $35 per week or $50 per paycheck for the next couple of weeks. And then you will start trying to find ways to make it happen.
And it’s easier when you have a goal because and you have a plan for savings than when you just go out and say I want to save more money. Well, what is more money? And just nothing wrong, because as long as you’re saving money, it’s always a good thing. But with strategic savings, the goal of strategic short-term savings is that you are creating conditions to keep more of your money because you’re strategically setting these perimeters of the time and the date when you should have the money. And then you are actively making changes in your lifestyle, even if it’s just not buying that Starbucks coffee, which I have nothing against because not buying Starbucks coffees is not going to make you rich, and buying Starbucks Coffee is not going to make you poor.
because ideally, you can only spend as much money as you have, if you don’t save money, you cannot spend more money than you actually have. You could go into that. But that’s a different story. But the whole theory behind strategic savings is to create conditions where you can keep more income in your pocket. I keep saying that. And that’s a quote from Douglas RFCs, from his book with winning with the market. And it’s a really fantastic book, I encourage you to check it out. Because he, unlike most investment books, he has a great segment in that book about savings, and most investing books are just assumed you have the money.
And then they tell you well, you know, go put it here and go do this or try that. But and Mr. C’s book, he starts off with saving strategies and the highlight of his book was strategic saving. So the idea of strategic saving, the idea of strategic savings is that your savings will become the fuel to supercharge your investment. And just that it’s the idea of you know, don’t say out of fear, make saving money, your new norm find ways creative ways to save money, so that when you do your finance every day when you spend your money when you get your paycheck, the same becomes automatic. And my personal favorite strategy is the bank sweep strategy and it’s a strategy I’ve used for years.
And it’s basically I only spend new money so when I get paid, I look at my budget, I pay all my bills off that I have to pay and that the Little period, or in that pay period, all my bills are paid off. And then I go live my life. And I don’t go crazy with my spending. But before the pay period ends, you know, when I’m waiting for my next paycheck to hit, if I have 50 cents left in my account, if I have $20 left in my account, I automatically sweep that money into my savings account by doing an online bank transfer, and these online bank transfer adds up. And that’s just the theory of, you know, like, small amounts building up into a big thing.
And that’s the whole idea behind this pocket change investments. podcast is that I’m not asking you to, Oh, you got $1,000 in your savings account, you need to do this, or once you know, I’m gonna deal with you and deal with me at wherever level that we’re at right now. And I’m going to tell you that, you know, you do have all your life to start saving and investing. But why not start now, why not take those couple of pennies and, you know, buy fractional shares, why not take those couple of pennies and put them in your savings account so that they don’t get
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mixed in with your new money and then spent, and then you have nothing to show for it. Because if you make $20,000 a year, or $15,000 a year, or even $50,000 a year or $100,000 a year, it’s impossible to save your whole income, and there’s always going to be something to spend money on. So what I’m saying is, practically speaking, let’s see how much money you can save by taking those extra cents and dollars that’s leftover after you get your new pick your old paycheck and you’re waiting for your new paycheck, why not take that money and throw it in a savings account. And then once you get up to about $500, why not we find a plan that has something else to do with it like you got $500 sitting in your savings account. That should make you feel happy. But at the same time, as you build that money as you work towards that goal.
And you are actually creating a circumstance where you have more financial freedom than most people and the United States will have. Because when you save money, at first, it is painful. At first, you feel like you’re missing out on things. But that’s the whole opportunity cost because you can’t spend money twice. But once you begin to save money, and you can actually look at your account, it actually becomes relaxing to know that you have money to know that if you want it to do something, you if you want to spend money, you could go out and spend it. And if you don’t want to you don’t have to, but it’s there. And that’s very comforting. I remember when I first got $500 in my account, it was sitting there for like three months. And I’m like just looking at I open up my account every week and just look at like, oh, man, I don’t get paid until next week.
I just got paid, and I still got my last paycheck, and my savings account. So that’s an awesome feeling to have. And the reason why I say this is a short-term strategy is that after a certain amount after you build up a certain amount of savings, it actually becomes a burden. And you actually start to worry about like, whoo, I got all this money in my account, what if they get hacked? What if this happens, what if that happens, so it’s not a good idea to keep money in your account for the long-term. But it’s that’s why I say short-term strategy for savings because I noticed that you should have like a year’s worth of pay in your account just in case you get fired, or that gives you the financial freedom. But if I had my yearly salary in my bank account, that would make me panic, because I know how often email accounts and banks and all other industries get hacked, and I’ll be scared that somebody is going to take my money, or I’m going to lose it.
So I really disagree with the whole long-term savings ideal as far as a savings account goes. So if you’re going to save for the long term, I would definitely tell you to keep $500 in your savings account because the thing about savings accounts is they are the most liquid and stable accounts that you can find anywhere. And when I say savings accounts are liquid, I mean that you can go to any ATM machine. You can go to your computer, you could transfer that money you can have access to that money. Today, and when I mean stable, I mean that when you look at your bank account or your savings account, then as long as you don’t spend any money, that $500, or whatever balance you have, it’s always going to be $500. Because unfortunately, interest rates were a joke right now. So you keep your $500 in your account for a year, and it may turn into $501. But
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like, that’s mean, you Oh, that’s not really worth it. That’s not the that’s not worth really talking about, Hey, you know, I got $1. And I tie up $500 all year just to earn $1. That’s, that’s not cool. So basically, the idea is to keep at least $500, and your savings account. And once you get beyond that, you just start diversifying your money into things, you can put it into a certificate of deposit, which is not liquid, but it’s very stable as certificates of deposits work. It’s basically an agreement that you deposit your money into the special CD account, certificate of deposit. And you keep your money in there for an agreed period of time. And I’ve seen one month CD I’ve seen three months CDs are most common, but they even have some that go up in the five years.
So if you decide to put your money in a CD for three months to a year, they will pay you interest and there is a penalty, if you don’t stick to those agreements, if you take your money out before the term, you will be penalized. And that’s why I say wait until you get this $500 in your account. And don’t put that into a CD because if you have an emergency or a bill or something like that, it will not be accessible in the same way that it was in your checking account. And because it’s not accessible, it does not give you the same peace of mind as having at least $500 in your savings account. Now, a lot of people want to debate this, say hey, the FDIC insures my money up to $250,000 or whatever the FDIC insures your bank account for what no rational person would keep $250,000 inside of one savings account. I think that that’s ridiculous.
I mean, unless you’re super-rich, I’m pretty sure Jeff Bezos has $250,000 in one of his accounts, and he’s not really worried about it because it’s insured. But if I had $250,000, I can find a better place to put it than my savings account. And so I suggest that you avoid keeping 1000s of dollars in your savings account. Because really, even with a high rate savings account, you’re not making that same interest, and you’re not making it worth your while to keep your money in that account. And I don’t know too many people who need about $250,000 walking around money like I don’t know too many people who need $250,000 to be liquid and stable as they walk around the streets. That’s about as silly as keeping it in your pocket. You know, never know what’s going to happen.
But you also have money market funds, I love money market funds, because they are liquid and they are stable, they’re not as liquid as your savings account, because it may take two to three days for you to access your money once you make the request. But you can generally get your money out within three to five business days. And it’s stable, they pay a little bit more interest than a checking account. But it’s a lot more Stabler than putting your money in the stock market or anything else. And you can actually earn a good amount of interest compared to a savings account and your money market account, especially if it’s the high yield money market account.
So that’s just my spiel on that. Back to the savings goal. I personally have more bank accounts than I care to list right now. But, um, savings are an investment in the now. So as long as you have at least $500 and that’s just a starter $250 might be a starter for some people, but for me, $500 is the level that I’m comfortable with because as you have seen in my previous episodes, I’ve constantly been plagued with these $500 emergencies but $250 if I haven’t had too many situations where I’ve had a problem or got into something and I couldn’t at least put $250,000 I couldn’t put $250 down on a car repair or something like that, I just haven’t run into that. So $250 is a great idea. And the whole idea of strategic savings is just to make sure you have money available one to 50.
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That’s a good amount, it’s important to remember as you start saving that savings become super easy if you save beforehand. So in my example, with a bank sweep example, I said that at the end of the pay period, I take my money out and I sweep it into my account. But once you get into the practice of savings, once you figure out your budget, and you know how much your bills are generally going to cost you, you can set that money aside and you can automatically save a portion of your new money and then you don’t have to worry about it you can go on about your life you got your bills paid you got a couple of dollars for gas, a carfare or you know lunch or whatever you spend your money on one. That’s your money.
So if you save ahead of time, I haven’t a budget is a great way to do that. But that makes saving even easier because you don’t have to think about it. Just like if you have a budget, you don’t have to think about how much money do you owe for your bills. And if you want to hear more about budgeting, I encourage you to check out our budgeting episode. If you are interested and investing we’ll have an investing episode coming up and the very near future but stay tuned. I thank you for listening. And I hope you have a great day. Take all information that I said with a grain of salt. I am not perfect. I’m not a guru. But I just want to share what I know to help you make your life easier if you can’t have a great day.
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Subscribe to the pocket change investment podcast on Apple Podcasts, Spotify, or wherever you get your podcasts. The pocket change investments podcast reflects the opinions of our host Basheer Abdul-Malik and is for informational and entertainment purposes only listeners to the podcast should not interpret for shears opinions as a recommendation to buy or sell any security and it is not an offer for a sale of a security. The pocket change podcast is also not a research report and is not meant to be used for any decision-making processes.