What is considered savings?

There was an interesting guest post on Thicken My Wallet that got me thinking about what is really considered savings. The author was going through a financial dilemma with her husband where he considered savings liquid money that is accessible when needed and she considers it in a different way.

Here’s a snippet:

… I am all for counting RRSPs, RESPs (there was some dissent on that) and the extra mortgage payments as savings – it’s all part of net worth, right? Seems straightforward to me. Tell me how to convince my husband. He refuses to count anything other than cold hard cash sitting safely in a high-interest bank account as savings. I went online and did a comprehensive net worth statement, and showed it to him – he made a pfffft sound which I interpreted as “I am entirely dismissing your attempt to argue a financial point other than my own. Your so-called net worth statement is nothing to me, woman.”

Technically, anything that is put away for yourself is considered savings. This includes RRSP contributions, non-registered account deposits, the equity portion of your mortgage payment and cash deposits into your chequing/savings account. I’m not sure about the RESP contributions as I would like to consider that money given to my child.

Personally though, I’ve realized that we take great comfort in having liquid cash savings around which is pretty obvious to those of you who follow my net worth updates. While I consider RRSP and non registered contributions savings, I tend to not consider mortgage payment equity to be savings as the money is not typically liquid unless you sell. There is a way around this however by getting a home equity line of credit.

So back to the original article, I would have to say that I lean towards the husbands opinion of savings.  That is an increasing net worth is not the same as increased savings.

Back to you, what do you consider savings?

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FT is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.
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12 years ago

Agree with Husband on this one, too. I wouldn’t consider a mortgage payment as savings; I would consider a payment to my RRSP account as savings. Payment to myself = savings; payment to anyone other than myself = payment.

One is contributing to a decrease in debt, the other is an increase in, well, savings!

But the husband really shouldn’t scoff at having such a financially astute wife! Bottom line, an increase in net worth is still an increase!

12 years ago

I tend to be more granular, so I wouldn’t classify home equity (I don’t look at tapping into home equity to buy things except for investments), investments (these are for the long term), or even cash sitting in either a registered or non-registered account as savings (these are earmarked for long term investing).

Savings would be liquid assets (cash or money market mutual funds or other very short term investment instruments) that do not have a specific purpose – which is why I have very little in what I would term ‘savings’.

It is really a bit of semantics, since I associate the term savings with money that doesn’t have anything better to do than sit in an interest bearing account. But that is my personal definition and I could understand why someone would think the opposite way.

Fresh Start
12 years ago

It’s interesting to run into this after having a talk with one of my co-workers about having “a little extra money set aside.” To me, extra means unallocated, and set aside means intentionally not going to be allocated. In generally, it’s hard for me to think of anything as extra if I can look at it and say, “That should probably cover rent for the next six months,” it’s earmarked for something. Anyway, that’s a separate matter all together and probably just a strange personal quirk of mine.

I’m sure there’s some very technical definition of savings out there, but as I sit and try to think about what savings means to me, I have trouble putting it into words. I suppose the best I can think of right now is that I view any unspent cash that still has paydays before it needs to go out as savings. As much as I could lump investments in there, I tend to view invested money differently. Maybe it comes from having lived with someone who considered his TV an emergency fund. He did indeed drop it off at a pawn shop when the need arose.

The Rat
12 years ago

To me savings constitute cash and any type of liquid asset that can be easily transferred into readily available cash such as equities, mutual funds, GICs, T-Bills, RRSPs, etc.

I think that good debt such as owning a house with a mortgage is not actually direct savings; however, the equity that you build up with good debt can be used as a tool to increase your savings levels dramatically, if applied properly.

12 years ago

To me savings are the $$ tucked away either in a bank, in a cookie jar or under your mattress. If you notice when calculating your net worth, “savings” is probably an item, just like other assets. Savings can be used immediately (or within a short period of time). I’m not saving if I’m paying down a mortgage (ok, perhaps interest in the long run).

Thicken My Wallet
12 years ago

Thanks for the link. Just to make it clear, it was my columnist and her husband not me. As I wrote last week in another post, anything which is not used for consumption I considered savings.

Blogging About Money
12 years ago

FT, I think you hit the nail on the head, when you discussed the difference between the act of saving versus the actual savings on hand. It’s apparent that Thicken My Wallet and her husband have two different notions of the word savings, based on the verb and noun definitions.

I always think you need to always continue to work on the act of savings, by paying down bad debts, building RRSP and other retirement and investment portfolios – but those aren’t liquid savings (as TMW husband would look at it).

The emergency fund, the day-to-day savings fund and the GIC’s that are going to mature in 3-6 months. Those are cash savings. I personally view savings as the short-term liquidity available to me should I desperately require it – things that I would be able to get cash from immediately, without affecting longer-term plans. If you can’t or won’t touch it, it’s not savings.

Plus, if you were to include RESP’s and RRSP’s as savings, you might as well consider the after-tax and after-penalty amount as savings, not what you see on your statements.

12 years ago

I will start with book difinition savings=income-expenses (mutifoldream$ said). Once saving is parked into an income generating assets it is considered as investment. It then becomes part of net worth.

A person may be wealthy (by networth) but may be poor because there is not enough income for assets to pay his/her day to day expenses.

I agree with husband that savings may not equal to investment until and unless it is cashed. Its cash value may not be equal to value of investments at the time of redemption.

Having said, this is for educational argument. Practically, savings and investments converge to same if they are producing income.

Dividend Growth Investor
12 years ago

To me savings is everything that I have in a liquid financial instrument be it cash under the mattress, bank deposits and other fixed income as well as stocks in a taxable and non-taxable accounts. If I ever really need as much money as I can get my hands on, I could easily monetize these into cold hard cash to spend frivolously :-) ( or tuck it under the mattress)

I wouldn’t consider a house part of my savings. even though after it’s paid off “it saves” you money by not paying rent…

12 years ago

Ok, you can consider “savings” to be different from net-worth-increases, but then you can’t use “savings” as a basis for evaluating alternatives. For example, if you look only at savings, then you would conclude that paying down your mortgage principal and buying a big-screen TV are equally good decisions because neither one of them increases your “savings”.

So, define these words any way you want, but make sure you are using the right criteria to make your choices.