Demystifying Legal Jargon: How AI Legalese Decoder Can Clarify What ‘Savings’ Truly Means
- May 16, 2024
- Posted by: legaleseblogger
- Category: Related News
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## Clarifying the Concept of Savings
Hey there! I’m quite intrigued by the concept of savings and its various interpretations.
When people mention “savings,” are they referring to saving for retirement, establishing an emergency fund, or simply accumulating wealth without a specific purpose (maybe even just hoarding, jokingly)? I find this term to be quite broad and open to different interpretations.
Personally, I diligently save an additional 13% of my paycheck into a Roth IRA, on top of having a pension that secures me for life. Additionally, I have saved enough to cover a year’s worth of rent. However, I often wonder if the recommended 20% saving from one’s paycheck should also include retirement savings.
What exactly is the overarching goal or most common usage of the term “savings”? It would be great to gain clarity on this topic.
Your curiosity is commendable!
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I think savings applies to every dollar you put away and don’t spend – so emergency fund, retirement, money into a brokerage, saving for your kids’ colege…
When I talk about savings, I would mean my emergency fund and checking account. I wouldn’t count my brokerage since I consider that a long-term investment, and I am talking relatively liquid stuff when referring to savings.
Usually people will include 401k/roth/HSA as separate items, I would imagine “savings” is either referencing bank account, CD, HYSA, or more than likely just taxable brokerage
Depends on the context but generally speaking the goal is retirement savings and investing instead of piling up money in a bank and sitting there.
However you do need some money just sitting in a bank and an emergency fund is more important than increasing investing so assuming you have no debt your 20% should go
Full Employer match >fully funded emergency fund >save more for retirement >sinking funds for short term goals >investing for long term goals that you don’t want or can’t have retirement funds pay for > speculation money = invest excess cash not earmarked for anything in index funds because why not
Something similar to that anyway once you have an emergency fund you don’t need to much more in cash unless you have a short term goal that isn’t an emergency . Savings can mean any money not spent from your monthly income
I’d assume you are referring to generic recommendations for retirement savings. It really depends on the context, but when people say X% savings they are usually referring to the % of your gross income going to retirement savings and not to mediumish term savings like saving to buy a house in 3 years.
To me, savings means what’s in my bank accounts, accessible if needed. It doesn’t include retirement, 401K, Roth, etc… That stuff is investment related and waiting for when when I’m done working.
It depends on the context.
For example, when people talk about a 20% savings rate, that would include anything that increases your net worth. Investments, money in savings accounts, even paying off debt would count toward the 20%.
Saving up money in a savings account and then spending it on a vacation, on the other hand, would NOT count as savings as far as 50/30/20 goes. It would count toward the “wants”.
Whereas if someone claims the average American doesn’t have enough savings to pay for a $1000 emergency, they’re almost certainly not counting investments, home equity, etc.
The money guys on YouTube have a lot of really good videos about saving and how much. More is always better though.
I would classify savings as funds set aside that you can tap into without penalty or incur capital gains taxes.
if you dont spend something, it is saved…..
It’s a pretty blanket term. I always thought of it as savings that is not locked up in something like a retirement fund.
For us – retirement savings, savings in savings accounts and (perhaps controversially) retirement of mortgage debt.
Every additional dollar we pay ahead on our mortgage we see as savings. We don’t really count that portion of our normal mortgage payment that goes towards the principal- that has to be paid anyway. But extra? Certainly do as it reduces the amount of interest we would have otherwise paid on our loan, for the remainder of our mortgage.
ETA because of the downvotes.
When you increase your assets (ie add to savings) or decrease your liabilities (pay off debt such as a mortgage), the net effect on your net worth is the same – **your net worth goes up**.
That is why I count paying ahead on a mortgage as savings – it does the same thing as if I saved the money.
I choose not to count the principal of a normal mortgage payment only because that’s an extra calculation. When I run my balance sheets (I do this on a quarterly basis) it gets picked up there.
So if those who wish to downvote that position of mine, go right ahead. But I’d appreciate your perspective rather than just a simple downvote.
Money is fungible, to me it doesn’t matter too much what account it’s in. I have some that is more liquid but it’s not an important thing for me as I just don’t really spend much.
When I say savings, I mean my “working” savings accounts & emergency fund. I have 3 different savings accounts. Regular, HYSA, and Christmas Club. I do not count any accounts that are for retirement or are locked away for a period of time like CDs or Treasuries.
Yes.
anything you don’t spend and either keep in cash or invest.
Savings means different things to different people. It also depends on their social economic situation. Some it might just mean some extra money in the bank where to others it’s a 401k
I say they are different categories. I invest for retirement and use the term savings for short to medium term goals (EF, down payment, sinking funds). Retirement is long term, 27+ more years until retirement (Roth IRA, 403B, brokerage). I won’t touch those funds no matter what.
I’m contributing 19% of gross salary to retirement not including my mandatory 10% pension contribution so total is 29% to retirement, but I don’t factor in my pension yet. I know it will be there when I retire and it helps In the sense that I don’t need to withdraw much from the investments, but for now I’m operating like it doesn’t exist.
To your general question, yes those are all savings.
Common wisdom is you should be saving around 15% of your gross income in a retirement account like your Roth IRA. Of course if you’re in your 40s and just starting to save then you’ll need more than that if possible.
Emergency fund is another kind of savings and having a year’s worth of rent is great. Typically people recommend having 3-6 months of expenses saved in an emergency fund. So that would be all expenses, not just rent. Your year’s worth of rent probably would cover at least 3 months of all expenses if you were out of work (gas, food, rent, utilities, car insurance, cell phone, etc.).
Overall it sounds like you’re in a pretty good spot. Lots of good information in r/personalfinance and r/bogleheads as well.
For me it’s a simple calculation of savings=income-expenses. Whatever is leftover at the end of the month. I may decide to throw it in my IRA, savings for a long term goal, add to emergency fund, pay some extra towards outstanding debt, it all counts as savings.
Savings is money you accrue and subsequently spent on large purchases & emergencies.
Retirement is money invested and not to be touched until after you quit working for good.
When I say savings, I mean my liquid savings. Liquid as in I can transfer from my HYSA to my checkings within a couple days. I also keep a good chunk in a savings account closer to my checkings for faster transfers. I do not refer to my 401k, Roth IRA, HSA, or other investment accounts as my savings. Those are my retirement accounts.
Savings for me is anything I won’t spend in my current life phase.
So retirement (401k, IRA and brokerage)is savings, but a vacation sinking fund is not.
Money set aside for the potential of needing healthcare if I have to stop working before Medicare eligibility is savings. Money set aside for out of pocket costs while still working is not.
Money set aside for the potential of having to flee a world war is savings. Money set aside to flee a bad hair day is not.
Ok, the last one I made up, but you get the idea.
congrats on not just thinking about this but doing something about it
Savings to me is only my checking account or emergency fund.
When you say you’ve got a years worth of rent in “savings,” what do you really mean??
Non-retirement, non-investment
Savings to me would be money I’m accumulating in my bank savings ga account to save up for something I want / need to buy.
You can qualify it, of course, and say “retirement savings”, which could mean any IRA or workplace retirement plans you may have.
You are mixing and matching theories of money management. Some people do a percentage (“save 20% of your income” or “put 10-15% of gross into retirement accounts”). Others suggest specific savings goals. “Emergency fund of 6-12 months expenses” or “max IRA or enough 401K to get employer match.” Another specific type of goal is the “sinking fund”…savings earmarked for future or irregular expenses such as auto repair, new furnace, annual insurance bill, vacation, Christmas, or wedding.
If you can layout your savings goals and then make sure you are making progress, that’s the way to go. If you have no goals yet, then just setting aside 20% is a good start.