What are Savings ?

Have you ever stopped and thought about your savings and, at a root level, what they are?

Let’s talk about that.

You go to work or run your own business. You exchange your time and energy (labour) for a salary or the profits your company generates. You receive a pay cheque. Now from this you need to buy food (energy) to replenish your strength, pay for shelter (rent or mortgage) and clothe yourself. Then you decide if you want additional consumption from your pay cheque. If you have more money coming in than going out you have surplus money. Another way to put it is you have surplus stored energy you created. Savings are this surplus of this hard work!

Now money is a medium of exchange. Your savings are denominated in money terms ($’s). So to repeat: your savings are stored energy to be consumed at a future date.

An important question is “when am I going to consume these savings?” Another way to look at it is “why am I foregoing consumption today and inventorying my labour for future use?” What we see in advertising is statements like “your retirement savings” but really if you think about that concept, you have stopped working and now you need to consume your stored energy to live. Hence the reason it is promoted as retirement savings.

You should always start with WHY; in fact here is a link to a YouTube by Simon Sinek discussing this idea of WHY

https://www.youtube.com/watch?v=u4ZoJKF_VuA

Once you have determined the why of your savings, there is something else that I would like to point out. In 1792 the U.S. passed the Coinage Act and article 19 says:

               SEC. 19. And be it further enacted, That if any of the gold or silver coins which shall be struck or coined at the said Mint shall be debased or made worse as to the proportion of fine gold or fine silver therein contained, or shall be of less weight or value than the same ought to be pursuant  to connivance of any of the officers or persons who shall be employed at the said Mint, for the  purpose of profit or gain, officers or persons shall embezzle any of the metals which shall at any  time be committed to their charge for the purpose of being coined at the said Mint, every such   officer or person who shall commit any or either of the said offences, shall be deemed guilty of  felony, and shall suffer death.

Seems a tad aggressive to me, but why, why would they put someone to death for debasing their savings?

Just like I described above, in those days people who worked or ran their own business bought food, paid for shelter and bought clothing and saved in the money of the day which was gold and silver. The Founding fathers of the US had fought the revolutionary war to break from the bankers of England and they knew that if anyone debased the money they were debasing them and they would not stand for it.

Do you respect your savings as an extension of your labour or put another way, your hard work?

In general I am not so sure Canadian society does. I regularly hear comments like “I took a flyer on this stock”, “I am letting it go because it is the profits” and “if I lose the gains that I made it’s not my money it is the houses”. Perhaps you read an article where the author says “only invest money you can afford to lose”. You know how much this author can afford to lose…None. Not because I can’t afford to lose savings but because I respect my savings. That does not mean I have not suffered a financial loss, what it means is my attitude towards savings and investing is one of respect for the labour expended to acquire it.

We think it is important that you understand what your savings are, why you are saving for future consumption and whether or not you have a solid strategy to invest those savings that will allow you to have good consumption in the future when you choose not to work. We also think it is imperative to clearly understand HOW your savings are invested as your savings are a part of you!!

One final factor in dealing with your stored energy is taxes. The government can significantly “debase” your savings if you don’t have a strategy to stick handle around their rules. We have found that our clients are able to reduce their lifetime taxes 12-15% by using strategies we recommend in conjunction with their Accountants and Tax Lawyers.It is a team effort.

If you found this article thought provoking please share on your linkedin network and if you would like to discuss feel free to message me.

Live well

Lance