Safety, Status, and Legacy

Why we save

Have you heard the story of the millionaire janitor? If you haven’t, you should. Ronald Read, a janitor/gas station employee from Vermont, passed away in 2015 after 92 years of life. To his community’s surprise, this humble nonagenarian left behind a seven-figure fortune worth over $8 million dollars. As reported by yahoo finance, Mr. Read led a very unassuming life committed to service to others and meager wants. His secret to wealth, however, is no secret. Frugality, consistency, and longevity were the keys to his simple yet powerful trajectory to wealth.

Purpose to the saving

As I think about Mr. Read’s story and many others about abundant savers, I am often intrigued as to the “why” behind their impressive savings.

First of all, it’s a given that abundant savers like Ronald Read possess discipline. That is because successful amassers like Mr. Read all must abide by the golden rule of financial success: spend less than you make. Easier said than done for most of us.

But what about the reasons behind this long term discipline? Why did Ronald Read end up with $8 million in his estate? What inspired him to grow his fortune while living a frugal life of manual labor? Why did he set aside comfort and pleasure for a life full of work only to leave it to others?

Accidental millionaire

When speaking to anyone about finance, I often bring up the golden rule mentioned above. Once again, spend less than you make. This rule is so important to financial success that it must be considered at every stage of planning. Without it, almost nothing will work.

The interesting thing about this fact is that it works regardless if you pay attention to it or not. That is, this rule works if you’re working hard to stay on track or if you never pay attention to your spending at all. I like to say “Spend less than you make. Do it dutifully and you’ll end up successful. Do it by accident and you’ll end up there, too.”

Oftentimes, prodigious accumulators end up with piles of savings without spending much time or attention to their income or spending habits. They might settle on a simple lifestyle or may be too busy to notice they are dramatically underspending. The effect remains the same either way. Suddenly, even by accident, some people end up with wild amounts of money saved in their accounts. It is certainly a happy accident.

The rest of us

While some folks end up accidentally wealthy due to good behavior with money, most of us aren’t as blessed with such virtue. Most of us are tempted by the wants in life or fall victim to lifestyle creep as our incomes grow. So how do the rest of us end up with robust savings?

Despite the lures of debt, millions of Americans find ways to make their savings and net worth grow every year. Accidental millionaires aside, this growth usually requires quite a bit of discipline. Minding their expenses, pursuing new or expanding avenues of income, and tracking the ins and outs of their overall cash flow are the keys to saving for these people. This is a mindful act that is pursued over a long period of time. Again, the result is the same as the accidental millionaire: successful savings.

Inspiration of saving

For those requiring purposeful discipline to save, what inspires us? That is, if the accidental millionaire doesn’t require any motivation, what is the fuel that keeps the rest of us on track?

I’ve thought about these reasons and they are limitless. Retirement, education, down payments, emergency fund, new boat, travel, medical costs, and so on. If money can be spent on it, then money can be saved for it.

As I consider all of the reasons to save, I find myself focusing on three main categories. That is, most savings goals can easily fit (or be reasonably shoe-horned) into three broad categories of savings behaviors. They are: safety, status, and legacy.

Safety

A safety saver is someone who feels security by the act of saving. I’ll admit that this is mostly why I save. I’m probably 75% a safety saver.

This type of saver can be a prodigious saver in multiple ways. Starting with retirement, they likely have their 401(k) maxed out and find ways to squirrel funds away in other retirement accounts. They might not realize that they are already well ahead of their retirement income goals and still store large portions of their income for future years.

This type of saver also seeks different things to save for. On top of a fully funded emergency fund, they might also create multiple buckets for independent savings goals. They might even create overlapping savings goals. For instance, they may have a six-month emergency fund along with an emergency car repair fund in addition to an emergency HVAC repair fund. Don’t get me wrong, this type of person is very prepared for whatever may come their way, but they may be saving multiple times for the same event.

Safety savers, like me, might check their accounts often. You might be advised to ignore your day-to-day account balances and I agree. However, I definitely don’t follow my own advice. I enjoy knowing how much I have saved. Yes, as silly as it sounds, I like seeing the number on the screen. Yes, it’s just a number. However, there is a very real feeling of security associated with it. To me, that number represents that I’m ahead of the pace of my expenses. It also represents the ability to easily handle a future unexpected expense.

Ironically, when unexpected expenses arise, I rarely use my savings for them. I find a way to budget the drawback into my spending over the next handful of months. It is an act of constant preparation and no execution.

Finally, these types of savers may find it hard to begin saving their nest egg when the time comes. Their “number” brings such a sense of peace and safety that it is very difficult to turn the switch off and enjoy drawing down their hard-earned savings. Watching that number decrease can be stressful, especially when growing it brought them such a sense of peace.

Status

Status savers actually have much in common with safety savers. Just like people seeking security, status savers save money towards multiple goals at once. They also end up financially successful, or at least have a net worth that reflects their efforts.

The main difference between safety and status savers is that status savers tend to pull the trigger on their goals more often. That is, if they attempt to save for a specific spending goal, they are more likely to actually buy the item when they save enough. Contrast this with safety savers that might never buy the item at all while enjoying the pile of money they accumulated in the process.

Status savers also tend to save towards more impressive goals. A boat, an expensive college, a new car, or a big house. They might not be the type to gloat their wealth, but they certainly aren’t ashamed of it. They worked hard to save for these things and don’t mind letting it show. Frequent vacations, nice clothing/jewelry, and expensive activities can be part of their lifestyle choices as well. Once again, they don’t mind if their success shows.

It’s important to note that there is little wrong with being a status saver. So long as income/savings can support their lifestyle and their goals are funded and value-aligned, then I have no judgment on them. In fact, since a status saver is more likely to actually purchase an item they saved for, one could argue that they are behaving more rationally than a safety saver.

Legacy

This type of saver has much on common with a safety saver as well. In fact, as the years go by, safety savers can evolve into legacy savers.

Legacy savers find purpose and joy in saving for the benefit of others. They have a vision for their financial success far beyond its effect on their personal lives. They envision leaving their savings behind for their heirs or charities they find worthwhile. As mentioned, safety savers often turn into legacy savers later in life. As their behavioral habits resist spending their hard earned savings, they begin to focus on how their money could be used by people or causes they love. It makes sense, too. What could be more secure than a legacy that outlives us?

Legacy savers also have a few things in common with status savers. Primarily, they can be charitably minded. While status savers might be more inclined to make donations and take credit for them during their lives, legacy savers are more likely to leave their fortune behind in a will or create charitable trusts. Just as safety savers, legacy savers aren’t as concerned with the recognition of their actions, but are fine leaving large amounts to charities when they are no longer around to see the effects of their good deeds.

No judgement

It’s important to note that there is no “right way” to conceive your path to wealth. Often I hear people villainize status saving behaviors while preaching the virtues of frugality. While frugality will definitely work for everyone, it isn’t mandatory for everyone. As I said before, if you have everything in balance and your cash flow can support it, then go for it. Just remember to enjoy it.

Likewise, safety savers can be criticized for never actually buying the things they save for. These folks might also be criticized for living too far beneath their means without a defined reason to do so. As I said before, sometimes the accrued savings is the goal. If a steadily growing savings account provides security and happiness for someone, who are we to judge?

Which are you?

What type of saver are you? Or, if you’re not a good saver yet, which type of saving behavior might inspire you?

For me, I’m 75% safety, 10% status, and 15% legacy. However, I find myself shifting more towards legacy as I get older. Unless I find a purposeful reason to begin spending more later in life, then I’ll probably leave much behind when I’m gone.

Regardless of which type you are, find a purpose for your savings. Save for something specific or save towards the idea of security. Never save for the act itself. Saving without a purpose is uninspiring and ultimately difficult to sustain. Saving requires discipline regardless what you’re saving for. Find your purpose, find your behavior style, spend less than you make, and save on.