Money Mindsets: Saving

If you received $1,000, what is the first thing that comes to mind to do with it?

  1. Spend it! You’d been eyeing a [vacation/handbag/coat/dress/pair of shoes] and just couldn’t find the money for it.
  2. Save it! You were worried about meeting your savings goal or maxing out your 401(k) was cutting into your discretionary savings or you just plain wanted to throw some more money at a particular savings goal.
  3. Give it! You’d been meaning to up your charitable giving, but just hadn’t found the money to do so or found the right cause.

This type of income could be:

  1. Large gifts from parents
  2. Irregular bonuses from work
  3. A raise on your monthly paycheck
  4. Regular (or expected) bonuses from work
  5. Distribution of a certificate of deposit that you had forgotten about
  6. Income tax refunds

My general inclination is to save the mini-windfall. I net about $4,500 each month after maxing out my 401(k) and I see a significant amount of money each year in scheduled bonuses from work (to the tune of at least 1/3 of my gross base annual pay). I use these bonuses to fulfill a lot of my savings goals, like maxing out my Roth IRA, investing in taxable accounts, saving towards buying my car and my condo and in the future, a house, and pre-paying my mortgage. I rely solely on my monthly paycheck, after 401(k) contributions, to cover my monthly and yearly expenses.

I also save raises and income tax refunds. (Though I also try to minimize my income tax refund by adjusting my W-4 withholding throughout the year and seeing more money to save each month.)

As for large gifts from my parents, I will generally spend these on something specific. For example, my parents gave me some money towards buying a car. I didn’t buy a car any more expensive than I would have bought without their help – it just made it easier. My parents also gave me some money towards a down payment on my condo. There are some other funds still waiting to be disbursed that I am going to use for decorating my condo. I’ve been really bad so far at acquiring paintings and in general, making my apartment feel like a home, and so I’m going to use the remaining funds from my parents to help towards things like blinds, curtains, paintings, and any extra furniture that I might want like a table at the front entrance.

There is one exception to saving bonuses – I spent all $10,000 of my relocation bonus on furnishing my apartment. That was definitely the best plan to do with it. I didn’t want to just go to IKEA and furnish my entire apartment with $2,000 worth of cheap furniture. Instead, I went to grown-up furniture stores and bought bedroom and living room sets that I absolutely love.

I have a really hard time spending money, but that is something that I’ve gotten better at over the last few years. I bring in enough money and save/invest enough money (61% of my net pay in 2011) that I also should spend enough on things that make me happy, like a nicer condo, nicer furniture in my place, and nice vacations.

Readers, what is your financial mindset? Do you default to spending, saving, or giving?


9 thoughts on “Money Mindsets: Saving

  1. I also always default to saving. Like you, I live off my paycheck after 401k contributions and then save all bonuses and windfalls. Right now my bonuses are not a high percentage of my income. However, in a previous job my bonuses were equal to 100% fo my salary or more. Saving these bonuses allowed me to pay for business school without taking out a lot of debt and put down a full 20% downpayment at a time when this was not popular.

    Now extra money goes into our down payment fund. Or our 529 plans if it is a smaller amount.

    • Wow, bonuses equal to 100% of your salary or more! Either your salary was pretty low or your bonuses were pretty high. My bonuses aren’t based on my salary, but that’s the easiest way to relate the size of them without specific numbers. I definitely love these bonuses for saving.

      Are you guys getting close to your down payment goal? Or is your goal really to just keep saving until you find a place and then do a larger down payment, including the amount you get from selling your condo?

      • We’ve surpassed our downpayment goal so now we’re just trying to continue saving so we can have a larger down payment. Now we just need to find a house! And unfortunately with the way property prices have dropped, I don’t know that we’ll get any money out of our condo. I’m very glad I put down a full 20%, otherwise we might have to pay to get out of this place!

  2. I definitely default to savings mode for sure. Sometimes too much. :) I remember specifically forcing myself to spend one of my last bonuses from work, and ended up taking my friends and family out for food and buying myself a couple of things.

    • I think that I default to savings mode too much as well sometimes :) This is definitely something that I’m working on.

      As my monthly spending plan creeps up higher, I think that continuing to save all of my bonuses is a good idea since I’m saving less and less of my monthly paychecks.

  3. Saving– it just goes in general slush. Sometimes mortgage prepayment.

    There are specific times of the year when I look at how much we have (did we make it through the unpaid summer with extra to spare? Is there money left over after estimated taxes?) and that might get spent on something frivolous (laser hair removal…) but it’s generally not based on when the money comes in. I have to make an effort to do mental accounting.

    • Have you actually done laser hair removal? I know people who have had it done on their legs and I’m just not sure if it’s worth it to me.

      • Well… I paid for 6 treatments but only did 3 (I got busy, they moved their office, and then I got pregnant). I can shave with an electric razor now, but I still need to shave.

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