Advice from Nashville's Financial Guru Dave Ramsey

Dave Says
By Dave Ramsey
Author of Financial Peace and The Total Money Makeover
9/27/2004

Is there a limit to saving versus investing? 

Dear Dave,

My husband and I are trying to work on a budget and we're coming at it from different perspectives. He wants to put as small an amount of money in every budget category as possible and put the rest into savings-and that's OK to a point. However, we're getting to where the money is there that we could spend on other stuff but we're not doing anything with it because it's so important that it be in savings. 

We have no debt, about $100,000 in savings and we make about $200,000 a year. I'd just like to use some of the money to buy some things like a new couch. 

Mary 
Bowling Green, Ky. 
 

Dear Mary, 

Well, the difference is this-he is motivated just by the word "savings". You're not. I'm more like you. My wife is more like him. I can tell you how I have worked through that issue. I have determined as a financial counselor that it's unwise to have savings just for the sake of having savings. But I think it's very wise to save money for specific goals. 

One of those goals would be an emergency fund. You need to have a savings account with three to six months worth of expenses set aside just so that when life happens it doesn't turn into new debt and stress. You would probably agree with that. But having savings that doesn't have a mission, that just kind of lays around because he wants it? That's garbage. I want my savings account to have a mission statement. The mission statement of my example above would be for an emergency. 

Another mission statement might be saving for Christmas, so I don't get stupid credit card debt at Christmas. Or maybe the mission statement is saving to buy me something I want. For instance, you want to save for a couch. In that case savings wouldn't be bad. If he wants to put $200 in savings to buy a couch ten months from now, you'd probably go along with that. It's not saving that you're against. It's just saving for the sake of saving-with no mission in mind. So you need to tell him that and let him know your financial counselor agrees with you, because I do. I think you need to be saving money, but you need to be saving it for a purpose. 

In your case, you've got to come to a 50-50 agreement. That means 50% of the disposable income goes into saving and 50% goes toward spending. Disposable income is everything left after paying your basic needs. And you should do three things with disposable income: give, save and spend.
 
He needs to lighten up a little. You guys are making good money, you're out of debt and you've done a good job. You're on your way to becoming multi-millionaires and he needs to loosen up a bit and give you some of the money for spending. You've gotten where you are because of his diligence and he deserves great praise for that. Now it's time to add in giving and spending to have some balance. Otherwise you turn into Howard Hughes-a big pile of money and no mental health. I don't want you to go spend all of your money, that's not the point here. But a reasonable spending amount in a household with a $200,000 income so you can go redecorate the house is OK.
Dave

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