I don’t love blanket generalizations. Humans are nuanced, complex, unique creatures who tend not to slot easily into tidy categories, despite what the MBTI/DISC/Enneagram/astrology/Hogwarts-house-quiz industries want us to think.

That being said… most of the people I know tend to start out with a natural tendency to be either a spender or a saver.

Although I think our culture often makes it sound like savers are better, smarter people than their spendthrift peers, that’s not supported by the evidence. “Spender” and “saver” are nonjudgmental terms in the Fortunaverse: you aren’t morally superior if you’re inclined to stash your money away for a rainy day, and I’m not going to judge you if it burns a hole in your pocket.

In fact, I’m a born spender, and Mr. Fortuna is a natural saver. (Yes, this was a source of conflict before we figured out how to money together.) After years of practice, I can tell you that the sweet spot is when you figure out how to do both, and knowing your natural tendency provides information about how to get there.

Why should we build both skills?

While spenders have some fairly obvious pitfalls to guard against (spending all their money, racking up debt, never having savings for a rainy day), savers need help too. Savers often need permission to actually spend their money on something they want, and can be secretly driven by scarcity fears or anxiety. Savers also sometimes need a reminder that saving indefinitely, without making a plan or putting the money to work, isn’t optimal for their financial well-being.

Whether you’re a spender or a saver, if you aren’t saving with intention, you may be exposed to unnecessary risk or missing out on your financial potential. And saving with intention starts with knowing that there are several ways to save.

3 big types of savings

For the purpose of this discussion, let’s agree that when I say “saving,” I mean something very specific: compiling highly liquid, penalty-free, low-risk cash to fit specific objectives.

In this discussion, saving ≠ investing. Investing is something we do to actively grow our wealth. Saving is something we do to shield us from risk and/or help us achieve short-term goals. Keeping money in savings accounts, or in a coffee can on top of your fridge, means that your money is readily accessible when you need it — which is very important!

But as far as actually growing your net worth, it’s not very efficient.

This is why we set savings targets, instead of saving indefinitely without a plan. By setting targets for all of our low-risk, accessible cash, we are prepared to make a plan that includes investing (in retirement accounts, in taxable brokerage, in investment property, in our own businesses). Investing is, by definition, a high-risk, high-reward activity. The reason we are able to confidently take on that risk is that we’ve got liquid assets in the right types of savings to protect our peace of mind and our financial well-being.  

There are three main types of non-retirement savings that I prioritize with my clients, and I do strongly recommend not mixing them together to keep your mental math at a minimum: 

1. The peace of mind fund, a.k.a. the emergency fund. We have more details here and here. Based on your personal risk profile, the goal is to have 6-12 months of living expenses in a separate savings account that is ONLY there for true emergencies.
   
   I recommend keeping your emergency savings in a High Yield Savings Account (a.k.a. HYSA; another best-of list is here, and our household’s peace-of-mind fund is in Marcus by Goldman Sachs. Not sponsored, but we like them!).
   
   Why HYSAs and not CDs or MMAs? I like HYSAs because interest rates are competitive with CDs while leaving your cash fully available for you to withdraw on your timeline, not just when the bank says it’s ok. Money market accounts (MMAs) have comparable interest rates to HYSAs, and typically offer checks or debit cards, where HYSAs often require you to transfer cash to a different account to withdraw it directly. However, MMAs also tend to have minimum balances, which is not usually the case with HYSAs. Because I don’t mind transfers and I don’t like penalties, I lean toward HYSAs.
   
   When do you use your emergency fund? A true emergency is serious, time-sensitive, and unexpected. Here are three questions that we ask before we use money that’s in our emergency fund:
   • If I don’t spend this money to solve this problem, will it affect my household’s health, safety, or earning ability?
   • Do I have to solve this problem immediately, or can I wait and save over time to address it?
   • Can I find any of the money to solve this problem in my current month’s cash flow by moving things around, or forgoing something discretionary?
     
     
2. Sinking funds. This is when you are intentionally saving for irregular but anticipated expenses, like new tires, biannual car insurance payments, or quarterly HOA dues. Chucking a bit of money aside every month to cover these expenses will mean that they go from unpleasant surprises to ordinary tasks.
   • When you calculate this, you take the total amount you know you’ll need to pay and divide it by the number of months remaining until the NEXT time you make the payment. Once the payment hits, you can recalibrate the average. 
     Example: if you pay $600 on May 15 and November 15 (every six months) for car insurance, you would set aside an average of $100 per month, and roll it over so that when the bill pays, you have exactly $600. Then you pay the bill. But let’s say it’s March and you’re setting up your first household budget. So for now, since March + April + May are the months that you have left until that May 15 payment, you would want to budget $200 per month, so when May 15 hits you have $600 in the sinking fund. Then, when you’re setting up your June budget, you can dial it down to $100 per month and breathe easy.  
   • You can use a budget app to keep your sinking funds tracked. If that doesn’t work for you, simply finding a monthly target amount that you transfer into a separate account each month to cover those items as they come up is fine too.
   • You can keep your sinking fund in any type of account that works for you, depending on how frequently you will draw from it (if you’re withdrawing more than 6 x per month, you should not use a savings account or you might be penalized). For mindset and logistical reasons, I would not mix your sinking funds in with other savings categories; don’t keep your car insurance fund mixed in with your vacation goal savings or your emergency fund.
      
3. Saving for goals. This is the fun part!
   • If you aren’t using a budgeting app that lets you stack cash up (or you find yourself tempted to spend money that’s physically in your account), I recommend giving a major goal its own account. Then, as you get closer to the goal, you can physically see it, and you’ll probably find yourself even more motivated.
   • You can fund goals one at a time, or you can fund them simultaneously based on how time-sensitive (and important) they are.
   • If your goal is short-term (within five years) and/or time-sensitive, you can keep this money in an HYSA or any type of account that works for you, depending on how frequently you will draw from it (again, if you’re withdrawing more than 6 x per month, you should not use a savings account or you may be penalized).
   • If your goal is a long-term goal (>5 years off) and not particularly time-sensitive, it is ok to consider keeping the money invested in low-cost index funds in a taxable brokerage account, so it can grow a bit faster. We do not recommend keeping money you will need in less than five years (or on a time-sensitive basis) in the markets, because you need about that much time for the benefits of investing to outweigh the risks.

But what about retirement savings?

I can already hear someone asking why I didn’t add retirement savings to the list.

I love retirement savings and think it’s incredibly important, but I’m not including that here because retirement savings is a type of investing (therefore, it carries risk), and it also has lots of its own special rules (i.e., it’s not very liquid and carries penalties if you break those rules). I do not think you should consider your retirement savings as an option to shield you from risk in day-to-day life until you’re, well, retired.

Investing for retirement is probably the longest-term savings goal most of us will have in our lives. The way we save for retirement should be ongoing (usually every month), and it will probably take a long time until you hit the number that means “enough.” If you are into playing with FIRE (“financial independence/retire early”), your time horizon is shorter, but it’s still probably going to take more time than the other 3 types of savings. So while it’s great and super-important, it also has unique strategies and risks, and should be viewed a little differently.

Spenders (and curious savers): how to actually get money for your savings goals

Friends, I have been engaged in full-contact budgeting for, like, nine years now. I’ll always love an every-dollar-has-a-job budget (it’s how we paid off our house in 4 years!), but I talk with enough people about their money lives that I know not everyone wants that level of intensity. But if that’s you, I have great news: there are plenty of people out there reaching their financial goals with simpler methods, and a bunch of them told me their secrets!

Here are a few deals you can make with yourself to find dollars to put toward your savings goals. (These tips also work well for paying down debt, or any other financial goal you might have!) You don’t have to do all of them, and certainly not all of them at once — even one change can be powerful! — but I share them all here because we are all different. What works for me, and for the friends & clients who shared some of these tips, might just work for you.

• Figure out the “enough” threshold in your main checking account. At the end of each month, money that’s over the threshold gets kicked to savings. 
• Live on just your salary, and put some/all of your “extra” or “surprise” money — credit card cash back, business travel per diem, bonuses, tax refunds, side hustle/consignment cash, gifts, even a three-paycheck month for my biweekly paycheck heroes — towards savings/goals.
• Dump any large windfalls into savings immediately, even if you move them later: tax returns, inheritances, bonuses, side hustles, etc. If there are expenses (taxes, side hustle costs), pay those first… but if you put most of that money into savings right away, you add a neat little mental speed bump that ensures you’re spending it intentionally, not just letting it slowly trickle out.
• “Pay yourself first… Out of sight, out of mind is real.” In practice, this usually means split your paycheck and automatically route part of it directly into savings. (If this doesn’t fit your situation, you can also set up an auto-transfer out of checking the day after payday.) You can’t miss what you don’t have. Bonus points if you get a raise and increase your pay-yourself-first amount at the same time.
• Temporarily forgo, or choose to be extra-frugal with, a thing that you know you can do without. Cut back on coffee shops, stop ordering appetizers or beverages when you go out to eat (or limit your restaurant eating entirely), stay out of Target/Sephora/Michaels… whatever the thing is that you tend to overspend on, delay it for just a little while, and consciously put the money you didn’t spend toward your goal.
• “Often when I’m debating optional/fun purchases, I ask myself if I’d be willing to put that amount into savings instead (since I clearly think I have extra money). Usually I don’t buy it, or I budget better/plan longer rather than impulse buying.”
• Know your temptations: If you’re prone to impulse-buying when you’re in store, opting for curbside pickup or an affordable delivery service may actually save you money. If you’re more likely to add extra stuff to your cart when you’re online, log out of your online shopping faves, delete your payment info, and force yourself to go to a physical store, where you get only what’s on your list.
• Get a money-saving app (e.g., Acorns, Qapital, or Digit) that rounds up transactions for you and automatically puts the spare change in savings. 
• Take out money in cash and put it in a physical location where you know you won’t spend it. (If you do this, please send me a picture of your piggy bank/coffee can/vacation jar.)  

Savers: How to let yourself actually spend money for once in your frugal life

My savers, you probably already do plenty of the stuff I note above. (After all, I polled some of you!) So, that part wasn’t really for you.

Where you tend to need help most? Actually letting yourself spend in ways that bring you joy. It can be really hard to let loose and allow yourself to on-purpose spend your hard-earned dollars.

So have a generous emergency fund. Know your irregular expenses (individual or in total) and chunk money aside to make sure they’re covered. Crunch the numbers and figure out what you need for the things that matter to you (goals, retirement, generosity, etc). And then frequently remind yourself… you’ve got your contingencies covered, and you are allowed to spend in ways that bring you joy.

If building a data-informed plan and living by it still isn’t enough for you to unclench your fist from around those hard-earned dollars, and there is something that you really want that you can’t bring yourself to buy… I recommend that you use that saving-for-goals thing to to set aside money for the simple purpose of letting you do what you want. Make a goal “spending” account, and know that the money in that account is actually supposed to go out the door. Start small if you need to build the habit, but do things that are calling to you.

You’re allowed to save up if you’re building up for a sweet goal; tattoo sleeves and speedboats and art safaris need more cash flow than a single month for most of us, and if your real dream is to stop working for The Man and take an extended European sabbatical, attach timelines and dollar signs and make that happen! And it can always help to share your dream with a friend who can nudge you along (or join you).

Spenders and savers: mindset matters

In response to my poll, I also had several people share some super-important ideas about getting your mind right about your money:

• “Keeping in mind why I’m doing these things, and remembering my goals and priorities, helps a lot.”
• “The most important thing I ever did for my overall financial health was to get real, REALLY real about what I want, and how I want to live life… not what it ‘should’ look like.”
• “I was taught that money is stressful and shameful. When I could treat it like one data point in my whole life, I finally was able to be in charge of it, instead of being hostage to old patterns.”

Know your “why.” Know your values. Remind yourself (frequently) that your net worth is not a referendum on your worth. Get to know your money life, instead of allowing avoidance to write the rules. And remember that money is not the end goal here.

The entire point of saving money (or paying down debt, or other wise money decisions) is not because doing those things is inherently “good” in some approval-seeking way. The reason to do these things is to build and protect a life that aligns with what truly matters to you.

If you have any secret saving hacks, or if you need help giving yourself permission to spend, or creating your savings infrastructure, or dialing in your money mindset (or you think there’s some secret fourth thing that I left off the list) send a note to hi@fortunamoney.com, and we’ll chat.