Money Buys You Time
Or, why you don’t need a reason to save money
👋 Hey there! Welcome to a new edition of The Sunday Wisdom! My name is Abhishek. I read a lot of books, think a lot of things, and this is where I dump my notes and (so called) learnings.
I mostly write to educate my future self, but if you like what you read here, I would say this hobby of mine just became a bit more purposeful. Now… time for the mandatory plug!
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On to this week’s essay! It’s about 1000 words.
Q: How much money should one save?
Imagine you are called for an ad-hoc meeting with your boss, on a Tuesday. The company HR is also there. You are slightly surprised by it, but you don’t get time to think about it since your boss immediately starts speaking. “As you know, the company hasn’t been doing well for a while, and some of the roles have been impacted. Unfortunately, yours is one of them.”
That’s it! You just got fired, effectively immediately, with 4 weeks of severance. You weren’t at all prepared for it. You are still processing it, unable to believe what just happened. Now you know what a Back Swan really is!
Thousands of employees all over the world (mostly in tech companies) faced a very similar situation in the last couple of days. They are still in the midst of processing it.
The two biggest economic stories in the last two years were a pandemic and a war on Ukraine. Thousands lost their livelihood. No one saw any of them coming.
It always works like that. But the biggest risk isn’t that you don’t see any of them coming. The fact that you aren’t prepared for them is what makes it risky.
Today, let’s talk about money. More precisely, the importance of saving money, and why you don’t need a spending goal to save money.
People generally save money to buy a house, a car, for children’s wedding (if they are Indian), or retirement. That’s great, of course!
But the biggest lesson of today’s essay is that the goal of saving money is not to buy tangible stuff. It is to buy flexibility, options, and, most importantly, time — all of which are intangible.
Everyone knows the tangible stuff money buys. The intangible stuff is harder to wrap your head around, so it tends to go unnoticed.
But the intangible benefits of money can be far more valuable than the tangible things that are obvious targets of our savings.
When you don’t have any savings, you are forced to pick up whatever bad luck throws at you. If you get laid off, you have to start looking for a job immediately and take the first one that comes your way, without considering your purpose or the quality of work. The pursuit of money takes control of your life.
But savings without a spending goal gives you the ability to wait for the right opportunity, even when times are dire. It gives you time to think, and lets you change course on your own terms. You remain in control of your future.
Saving with a spending goal in mind makes sense in a predictable world. Alas, we don’t live in a predictable world. Random events, that are completely out of your control, can happen all the time.
Therefore the goal of saving in this kind of world should not be to spend, but to cushion yourself from life’s inevitable blows that can surprise the hell out of you at the worst possible moment.
The goal of saving money is to defend yourself from economic Black Swans.
Another counterintuitive goal of saving money is to build wealth. As weird as it may sound, building wealth has little to do with your income, and lots to do with your savings rate.
Paul Graham, the revered founder of the startup accelerator Y Combinator writes: “Startups usually take a while (often a year or two) to figure out exactly what their business is. The biggest preventable cause of failure is spending too much money, by hiring too many people, during this period.“
Even for a startup, spending too much can become a problem later. “When this phenomenon doesn’t kill startups, it often dilutes the founders terribly.” The solution isn’t to raise more money (even though a lot of startups do that, and still don’t figure out the real problem.) The solution is to spend judiciously, and save more.
Similarly, even though the amount of fossil fuel is constant, we have a longer runway than what we used to 50 years back because the efficiency of cars have doubled in the last five decades.
The point I’m trying to make is this: you might be able to build wealth without a high income, but you have no chance of building wealth without a high savings rate, no matter what your income is.
You might be a bad investor than others, but if you are a better saver compared than them — if you need to spend less to have a good lifestyle, if you need half as much money to be happy — you are better off than them.
A high savings rate means having lower expenses than you otherwise could, and having lower expenses means your savings go farther than they would if you spent more — despite your income.
I’m not asking you to live like a pauper in order to save more. All I’m requesting is to keep an eye when your spending becomes less about comfort and more about ego — that’s when it starts to become a real problem.
Everyone needs the basics. Once they’re covered there’s another level of comfortable basics, and past that there’s basics that are both comfortable, entertaining, and enlightening.
Anything beyond that becomes a way of showing people that you have (or had, to be more precise) money. Try to understand this: a bigger than necessary house, a brand new car (even though you already have one) aren’t signs of wealth — these are rather signs of money spent. Money that isn’t in the bank anymore.
Now, I’m not saying: don’t buy a house, don’t go on vacations, don’t spend money on food, don’t buy a car and use Uber. What I’m trying to say is: enjoy your life, spend money, have fun; but have enough money in the bank that can help you live comfortably for a couple of years, even with zero income.
Grow your income by all means. Make your lifestyle better by all means. But instead of focussing on your net income, focus on the gap between your spending and your earning — because that’s the real yardstick to build wealth. That’s what buys you time, even when times are dire. That’s the real return on your savings.
Everything else is irrelevant.
Timeless Insight
Failures, losses and negative emotions affect us way more than positive emotions. We often tend to overthink, overanalyse, and overgeneralise things after a setback. We end up blaming ourselves more than we deserve.
If you are a person who fears public speaking, and if you spend a lot of time thinking that you might stutter, go blank, or trip over on stage, it’s very likely to happen. Eventually, you are very likely to avoid being on stage as much as possible.
Your brain is good at making you feel exactly what you’re thinking. You start having automatic thoughts that lead you to get upset or frustrated over things that may not be true. The more your thoughts cause you distress, the more they are likely to be distorted and untrue.
As Seneca aptly says, “We suffer more in imagination than in reality.”
What I’m Reading
It is very heartening to know that even when we get it wrong (i.e. being human) we can make it right with authenticity and kindness.
— Irvin D. Yalom, Marilyn Yalom, A Matter of Death and Life
Tiny Thought
When someone says, “I wish I could help,” they certainly don’t wish they could help.
Before You Go…
Thanks so much for reading! Send me ideas, questions, reading recs. You can write to abhishek@coffeeandjunk.com, reply to this email, or use the comments.
Until next Sunday,
Abhishek 👋