Episode 114 - The Purpose of Savings: Why We Save

Why do we save money—and where should it actually go? In this episode, we break savings down into three clear purposes: emergencies, large purchases, and wealth building. You’ll learn how these fit together, where to keep your money, and how saving can bring peace, flexibility, and freedom to say yes when God calls. 

Transcript

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Paul, Welcome to Catholic money talk, where we talk about all things money and finance, and we try to do it through a lens of being Catholic, where our ultimate goal is to one day be in Heaven with the Lord. I am your host. Paul Scarfone, thank you for being here today. Welcome back to Catholic money talk. Happy New Year. Here we are, January 2026 thank you for joining me today. As I was reviewing my episodes and all the topics that I've spoken about, there was one glaring one that seemed to be missing, and that is savings, namely the purpose of it. Why we do it? How do we do it? So that's that is what I want to talk about today, the purpose of saving, why we save? But before we do that, let's say a prayer in the name of the Father and of the Son of the Holy Spirit. Amen, Heavenly Father. We thank you for this day. We thank you for all the ways that you love and bless us, Lord, we know that you have an awesome, awesome plan for us. Lord, just fill us with a deep trust in you, knowing that you want what is good for us. Just fill us with hope. Fill us with joy, fill us with your spirit, Come Holy Spirit. We ask this all in Jesus name, amen, in the name of the Father and of the Son and of the Holy Spirit, Amen. So let's tackle savings. In several of my episodes, I talk about savings. I talk about emergency funds and large purchases, retirement savings and wealth building, but I've not made a singular episode that talks about how how they all fit together and why they are all important. You know, it's it's funny in my coaching practice, savings naturally comes up very early with clients. They're usually eager to work with me because they've identified a need for savings and want to help create a plan, a process and those required behaviors to build savings or or they identify very quickly that this is an area. This is the area of their biggest gap. And when I teach high schoolers personal finance, savings is one of those few things we do with money, right? There's not many things we do with money. We earn money, and then we give money, we save it, or we spend it. You know, when I teach the high schoolers, we dive into those aspects of money, right? Earning, giving, saving, spending. But somehow, in my Catholic money talk podcast, I've not cleanly just carved out one entire episode devoted to the important purposes or the the whys related to saving so. So here we go. That's what we're going to talk about today. So if you're taking notes, right, there's three reasons we save money. The first reason is for emergencies. The second reason is for large purchases, and the third reason is for wealth building. And sometimes people call that, you know, investing, but, but it's saving right? It's determined where you put the money. Right? Is it a savings account as an investment, or something like that? But those are but those are the three reasons emergencies, large purchases and wealth building, and so today we're going to dive into each of those. Let's first look at emergencies. There is no question in life that emergencies will happen. The only question is when. So saving for an emergency is a crucial part of a solid financial plan, and having a fully funded emergency fund, it protects your entire entire financial life from crumbling when I look back at the first 10 years of our marriage, Tara and I, we've now been married 22 almost 22 and a half years, but when we were first married, we never had an emergency fund. Yes, there were a handful of times when we had some savings, right, some extra money, but we never had anything that we officially kind of put to the side and labeled emergency fund for us. Unfortunately, we used credit cards for emergencies, so things like car repairs, medical bills, you know, like, like our copay part of them, and sometimes for the full balance as well. Now, I remember several times when we had a few emergencies that happened all at once, right? A car repair, and all of a sudden, then there's an ER visit, a home repair, plumbing or something, and all of that's just going on the credit card. And then when it comes time to pay, well, now today, it's almost Christmas too, right? And so we only had a few $100 maybe, to pay everything. And so who comes in credit card debt, right? And that's the truth. Yeah. A lack of an emergency fund makes any type of emergency a financial crisis, right? You've probably experienced this in your own life, where you could think of others around you that as they've dealt with this but a vehicle problem, it quickly becomes a financial crisis when you don't have an emergency fund, a medical situation quickly becomes a financial crisis without an emergency fund. So having a dedicated emergency fund is important. It helps us through an emergency without destroying our financial plan and yes, when we use the emergency fund, replenishing the emergency fund becomes priority number one the next month, that has to be the case. So what is an emergency fund? And when would you use an emergency fund? So there is a three question filter, right? A quick three questions that can help you assess if there's an if you're dealing with an emergency. First question, is it unexpected? Right? An emergency, it has to be unexpected. You didn't plan for it. Christmas is not unexpected. You knew it was going to be in December, right? A family vacation was not unexpected. You knew. When you requested time off of work, you knew it was coming, right? So the three questions, unexpected is the first one. Next one's urgent. It needs attention right now, right? And I'll give an example a little bit later, of emergencies and how to determine what needs to be done, dealt with right now, and what's something that can be wait to be dealt with. But you know, right now it's the winter, it's January. If your heater dies, right? Your boiler dies, that all of a sudden feels like an emergency, because it's urgent. You need that heater. If that house isn't running heat, your family's at risk. Plumbing pipes burst, like all these things could happen, right? So it's urgent. Is it urgent just because there's a sale going on or your favorite musical artists just released tickets. That's not urgent. That's not an emergency, right? And that's because of this third question, is it necessary? Do you need this for survival to concert tickets, no vacation, no Christmas presents? Now you you can reasonably avoid those right? So an emergency has to be these three things. It has to be unexpected, has to be urgent, has to be necessary. So what are examples of emergencies? Well, I've mentioned a few already, but a medical expense, major car repair, major home repair, maybe job loss or some type of income interruption. Those are true emergencies, things that are not emergencies. Well, a vacation, a new phone, because yours is old, or Christmas, right? I've used that a couple times. We just had Christmas, so it's still, we're still in the Christmas season as of today, So Christmas is on my mind. So that's not an emergency, right? So the quick thing is, you got to determine if it's an emergency or not. And so how much, right, we're talking about, you have to save for emergencies. So Paul, how much? Well, if you're starting to get your financial plan in order, you need at least a starter emergency fund, just for kind of peace of mind. That's probably 1000 to $2,000 for most of us, and this is because you're just starting out, right? You need something to cover you, right? If you, if you were like Taryn and I early in our marriage, where we had credit cards to catch the slack of our poor planning, right? We use credit cards for our emergencies. You want to avoid that, so scrape together 1000 to$2,000 and that's to cover small emergencies that have to be dealt with that are unexpected, urgent and necessary, like an ER visit or a flat tire, right? It's so crucial to have some money scraped together, and this is the start of your emergency fund. If you've got debt to pay off, pay it off with a laser like focus. You don't want to have to rely on a small emergency fund like this for too long, so get the debt paid off fast so that you can use those monthly dollars to build up to your fully funded emergency fund. So what's a fully funded emergency fund that's going to be three to six months of expenses, not income expenses, right? So it could be your needs, it could be your needs and wants, right? But three months, three to six months of expenses. And when I talk tell people this, they usually ask me a question, well, why such larger range? Right? Three to six months, one amount or double that amount? Well, that's going to depend on your income situation. If you're married, single kids, no kids, have a single income, have a double income, have income variability. These are all a factor in determining how large of emergency fund you should have. So single income families may lean towards the higher end, right having a six month emergency fund, a steady double income household, stable jobs, where incomes you know, very regularly and easy to rely on, maybe a three month. Emergency Fund. So think of it this way, the higher the variability, the more cushion you want, right? So now three to six months, right? We're saving for this emergency phone. We're saving for three to six months. Where do we put this? You're it's emergency funds are boring, they're safe, and they need to be accessible, right? So it's a savings account or a money market account. It's not invested. It's not tied up in a CD. It's you can get to it easily. It's not just mixed in with your checking account. It's not just a buffer in your checking account. No, it is set aside purposefully in a separate account that if you're married, you and your spouse, you pinky swear you say, we're not going to break glass unless there's emergency. We're not going to touch this account unless there's an emergency. We both have to agree on it. We have to go through those three filters I just mentioned, right, unexpected, urgent and necessary. And the emergency fund it it doesn't exist to make you money. It exists to keep emergencies from becoming financial crisis. You have to keep that in mind, and it's not just about the amount of money in the emergency fund. It's also about the behaviors we have. So for the last eight years, Tara and I have had a fully funded six month emergency fund. We used it recently in September for the like, the first time one of our kids had a minor surgery, and we got to the surgery center, we had to pay out of pocket on the day of surgery. We've since got the receipt and everything submitted to our health sharing network, and we're waiting for reimbursement. But in the meantime, we built up the emergency fund back to being fully funded. It's important, and it's a hard step, and for all those other we've had other emergencies in the preceding eight years, but we'd often find ways within that month to cover the emergency. We would limit spending in other areas. We change our budget to accommodate, you know, whether it's the car repair, minor, minor medical bill or home repair, and we would do this because we didn't want to use our emergency fund like it's free money. There's a cost, and the cost is having to scrimp the next month to rebuild it. So the emergency fund gives us peace of mind as we navigate the unexpected, necessary and urgent things in life. Okay, this is why we save for emergencies. So if you want more on emergency funds, check out episode 29 I dive deep into emergency funds. All right, the second reason we save is for large purchases. So first, what is a large purchase, right? I'm, you know, it's like, how long is a piece of string, right? It's a big open question here, so I would consider a large purchase as something that we can't fit into one month's budget. Okay, so it's still pretty open ended here, but let me give you a few examples. So something that wouldn't fit into one month's budget. For some of us, that would be maybe a $700 laptop, right, maybe a Chromebook or something. Or for others of us, maybe it's a$2,000 refrigerator, right? For some of us, it could be $100 ticket to a sports event or a concert. For most of us, it would be like replacing a car, and I'm thinking like $20,000 or more, or maybe even a home down payment. And that's whether we're putting 10% down or 100% down, right? So, so big things that don't fit into a month, and whether we're saving for kids, college, engagement ring, our kids wedding, right? All these are big things, whether they're physical purchases or experiences or other life events, most people will need to set money aside every month over several months or years to save up for some of these large items. Okay, this is the second reason we save large purchases. So how do we how do we tackle large purchases? First, we need to clarify the goal, right? And the goal is like, what? What are we doing? How much do we need? How much do we need? And then, how long do we have to save? Okay? And then you, you come up with a number, right? So if I need $1,200 and I've got a year to save, that's $100 a month, right? And you could just imagine, if you got a ton of things that you're saving for, all of a sudden, your whole budget could be eaten up and all these things you're saving. So it's important to understand, is this a need or a want, right? A need would probably be, we're going to need to replace our car at some point. A want might be. Let's go on a cruise, right. See, do you see the difference? So which one would be a higher priority within our budget, right? So that sometimes helps you rank which savings goals are we going to focus on right now, or which ones are we going to devote the most dollars to? You know, some examples of these large items. I rattled off a bunch, but just to put some numbers on some of them, let's think of a roof, right? You're buying a house. The home inspector comes. He's like, Yeah, you got 10 years left on the roof. Wow. How much is a roof? Well, that could be 10 to$20,000 or more, right? There's so many factors that go into that. And to give you an idea, like $250 Dollars a month for six months, right? That's five for 60 months. That's five years. 250 for 60 months, that's$15,000 right? So if you need to replace a roof, you need some time, you know? Well, most of us would need some time to be able to throw some dollars at these savings car replacement I already mentioned that 20,000 30,000 depends what you're looking for. Maybe you have a trade in, you know, something you could sell to get some money towards that school tuition. I mean, I've got a whole episode on college planning that's important to understand what you can do there weddings. I googled, I said, What's 30 what's an average wedding in the United States? An average is$30,000 that's a big number, and that's the average, right? So some people are 10 and some people are 60, or 100 or 200 you know, I've been to some elaborate weddings that probably costs well into six figures, right? So you got, how much is the wedding? How much you got? How much time do you have to save, and what can you put towards it every month, home projects, oh, my goodness, that's such a big range, right? You could go from a few $100 repair to a full blown $300,000 remodel, right? Maybe it's a vacation or family trip you want to save for 1000$2,000 per person, something like that. So the key is, with these savings for large purchase, you got to figure out how much you need to say, how much you need to save, like, what's the cost of it, and then determine how much you can put towards it each month. And you have to see if that's going to be able to get you there right. If you need to get your saving, if you need to get your savings goals sooner, right, maybe replacing car, you need to do that roof. You might need to pause some other items in your budget that don't have the same priority in order to fund this savings goal more quickly, right? So that's that's where I talk about opportunity costs. If we're going to say yes to this, what are we saying no to? We've got to make space for things, and then you've got to figure out where are we going to put this money. So very much like the emergency fund, you know, saving for a large purchase. It's not like necessarily long term. Some of them might be longer term, but some of them might be just sticking them in a little rinky dink savings account to pile up the money until you have enough there to pull the trigger on whatever you want to do. So a general rule of thumb is under five years. So a savings goal with under five years savings account works perfectly fine. You protect the principal. There's no risk to it at all. You don't want to chase returns or interest rates right over five years. Well, you can consider possibly investing some of it into well diversified portfolios. Historically, markets usually recover over longer periods, but it still requires an emotional discipline and flexibility, all right, and just some practicals on this, I have found personally that some online savings accounts typically might have a higher rate just because they don't have the overhead of a brick and mortar, but sometimes local banks those brick and mortars, they will match rates to keep deposits from leaving. I experienced that working in the banks. I would have people come in with the print out of the brochure from the place that they were thinking you're bringing their money, and I'd be able to honor that on their deposit. So don't overlook the relationship you might have with your current financial institution. Ask them, ask them, ask them if they're ask if you can get a rate exception on something to get a higher rate of interest. Okay? And as we talk about dollars that we need to save for large purchases, I can't emphasize enough the importance of not borrowing. Okay, when you borrow money and you sign up for payments, whether it be car payments, student loans, you know, or some sales promo like zero down 0% that type of stuff, or other credit card debt, right when you borrow you're robbing yourself from being in control of your monthly cash flow because you've signed up for these liabilities that you are legally responsible for every month. And when you give away the control of your cash flow, you are unable then to determine where your monthly income goes right. You're not able to fully determine what your monthly income is going to go to funding right. And some of these savings goals would be things you want it to fund. And so don't borrow. And then also, you should be able to see where having a fully funded emergency fund fits into this. A good savings plan has these three elements, savings for emergencies, saving for large purchases and saving for wealth building. So here's a quick story of a real life current example. So in our home, we had a leak between our second floor bathroom and our first floor powder room. I'll call it the kids bathroom and the powder room. All right, water was dripping through the tile in the kids bathroom, where the tile floor. Met the edge of the tub. And after years and years, a bathroom is probably 25 or more years old, the grout along that tub edge had chipped it become loose. And so when the kids are taking a bath or showering, and water drips down, and it gets into that crack. And so I saw the leak coming through the ceiling of the powder room, and I cut out all the wet sheet rock, and I was trying to figure out what to do, so I asked a retired carpenter friend to come over and help me just assess the situation. His name is Frank. So Frank came over and he looked at it, and he said, All right, here's what, here's what you should probably do. In reality, that second floor bathroom should probably be real redone. He said the floor and the subfloor are most likely shot after years of water damage, and there's probably some other inefficiencies, whether it be plumbing and electric, that you'd want to look at. He also mentioned that as you start to pull the floor up and take a look at things, you're never sure what you'll find right as you open walls and floors and stuff. He said the proper full repair would be to gut the second floor bathroom and just redo it. He said that if we did it ourselves on the cheap, it probably about $10,000 and my brother, he's a contractor, so and I know he's done bathroom renovations for over $100,000 right? Some pretty elaborate, fancy stuff. So I know it could go high, especially if you go through a contractor, you hire people to do it. So Frank told me that he would recommend, here's what he would recommend. He'd recommend stopping the water leak for now and patching the bathroom, the powder room ceiling. Okay? He said, this will be like a $250 Band Aid while you save for a full renovation. He said, patch the ceiling sheet rocks back on paint and then silicone the tile gap between the floor and the tub in the kids bathroom. And also you could seal the grout in the bathroom. The other thing he said is where the curtain doesn't connect to the walls on either side of the, you know, curtain in the in the shower, he said, just put big sponges right there on the on the tub ledge to catch and absorb any of that over spray that happens beyond the curtain. So, so he's recommending a $250 $250 Band Aid, and, you know, save up till you're ready to really tackle the bathroom. So I asked him, Well, what if I just tear up the floor and replace that? Could that be a good solution? Maybe it's only gonna cost me a couple 1000. He said, too many times. He's seen a more elaborate Band Aid turn into a major project when, especially when the homeowner wasn't prepared for it, he looked at me and said, If we pull up this floor and then find more problems, are you prepared to put 10,000 more towards this? And I said, No, so I was happy that he mentioned that. And true, we have a fully funded emergency fund that could cover those costs, but it would also wipe us out, and God forbid, another real emergency comes along, we would not have yet been able to recover and replenish the emergency fund from this one. So the emergency fund, it should cover the band aid, the bathroom renovation is a large purchase, and we need to establish a savings plan for that, right? I can't use the emergency fund for a bathroom renovation, so this minor repair and the patches I'm doing now should hopefully give us a three year window. This is what Tara and I are talking about to save up for a bathroom renovation in the in the future, and hopefully that would be maybe in a two or three year window. So I hope this example is helpful, because I'm trying to stress how all these pieces fit together and how they're so important, and how you look at them. Okay, so now we come to the third and final reason. We save money to build wealth. Now I've spoken in other episodes, and most recently in Episode 110 with Chris McMahon about the Catholic perspective on money and wealth. We save and invest and build wealth to prudently plan for our own future, but also to allow ourselves to be generous to others and to support the work of the church. And I'll I'll take another episode in the future to talk about philanthropy, and you know, whether that's supporting the church, it's missions or other causes and charities. But today I want to focus on what you have to do to be in that spot to give generously. We first need to have something to give, right? We can't give if we don't have something. So that's why we build wealth. So what is wealth actually for? It's not just retirement, right? It's prudent, future provision, right, caring for our family. It's generosity, being able to give more freely. It also wealth provides us some freedom, in the sense of it gives us options and flexibility. Then it's also legacy, and this we'll talk about with philanthropy stuff, but it's leaving something behind that reflects our values, right? So wealth is a tool. We can use it for ourselves, that's what the world talks about a lot, or we can use it for the Lord and His work. So that's, that's what wealth is, right? So where do we say for wealth building, there's two main buckets for wealth building, two main places you can put it you can put it in retirement accounts. So retirement accounts, you've heard of these. It could be a 401 K, an, Ira a Roth. Ira a SEP a simple retirement but like a, 403, B, right? There's so many different things we've heard, but those are all retirement accounts. They're designed for long term growth, and as I mentioned earlier, for many of us, retirement is more than five years away, so a well diversified investment portfolio is key for high returns and balanced risk and potential growth. Retirement accounts also provide tax advantages. There's another one that could be a whole, whole episode to itself, and I'm not ready to speak on specifics of tax law here, but there are several tax advantages for saving and investing within a retirement account. Now retirement accounts, they're generally accessible. You can access them without penalty at 59 and a half. Okay, so that's retirement accounts. That's the one bucket you can put them in. The second bucket would be non retirement accounts. You call these tax bill accounts. You can still invest them in brokerage accounts for growth, right? That's something you would call them a brokerage account, a mutual fund. You could access them before you're retired, right before retirement age, you could get to them before you're 59 and a half. And these are useful for people who might want to maybe early retire, or other business opportunities, maybe large generosity goals, or just flexibility when life changes. And you know, I'll put a little plug in here for for some of you, it doesn't always need to be a bank account. I've got many friends, clients, past bank clients as well that would also invest in real estate and other businesses. And there are certain risks, advantages and benefits to these as well. Again, maybe another episode, but, but I don't want to leave those out without mentioning them here. Those investments will typically come after you've already set something aside to use towards them. For instance, you might need 100,000 or a multiple of that, right? 234,$500,000 you might have to amass that first to be able to purchase an investment property or some other, you know, business opportunity. But if done well, that new thing, the property or business opportunity, will start to spin off income that you can put towards other investments or properties. And again, I just want to mention this here, because I know there's some people that are more comfortable investing in real estate and other projects than in the stock market, right? But that all falls into the same category of wealth building. The importance of saving and investing outside of retirement is the flexibility it gives you. So something I've been begun thinking about. I've got six kids. I'm hopeful they will all seek the Lord's will for their lives, and I would hope a few of them will be called to get married. And I think back to Tara and I when we were engaged. Six months later, we were married, right? We got engaged. February. We were married in August. Is six months enough time to save for a wedding. We barely pull it off, right? It depends on the wedding. My point is that when you save for long term wealth building that's not in your retirement accounts, it gives you some options, especially for those things that you weren't clearly able to create a nice, neat savings plan for, right, like a kid's wedding. It gives us flexibility, and that's a good thing. So retirement accounts gives you tax advantages, and non retirement accounts, although they're taxable, they give you important flexibility, and having a balance of both is good. So retirement accounts are powerful, but not all wealth should be locked up. Flexibility matters, especially for Families and business owners and honestly, most people in general. So the three reasons to save emergencies, large purchases and wealth building So real quick, just a couple common mistakes that I want to address. First mistake, someone calling everything an emergency, right? I've been there. I see it happen. Not everything's emergency. Sometimes you need to say a prayer, take a deep breath, calm down and just assess the situation clearly, right? Like my example with the bathroom, renovating that kid's bathroom is not an emergency. The emergency is stopping the water from dripping down, right? So understanding what's what. So that's one mistake, calling everything an emergency, second, investing money that you need in the next two years, right? If you're saving for let's say. Buy a house, you figure out a plan, oh, we're going to buy a home in three years. And you take money you have, and you start putting that investments, and all of a sudden they start going down right that the market takes a turn. It'll usually recover long term, but in the meantime, if it takes a turn, you could be out some, some serious amounts of money that you might need to pay for your down payment of your house. So that's the second mistake. Third mistake, only saving in retirement accounts. You want to have non retirement accounts where you save money as well. It just gives you flexibility. Another mistake. Third mistake we'll call it, is not saving at all because it feels impossible. And I think this is probably the top one or two. The second one might be the other top one or two, but not saving at all, because it feels impossible. The last mistake, waiting to save once life settles down. I was talking to someone recently, and we're chatting, and they had a baby a few months ago, and they're like, yeah, just wait until everything kind of settles down. I just looked at them like it doesn't. It just keeps going. Man, it gets faster, right? When we wait for life to just settle down, it never does. There's always something so don't make those mistakes. So these are the reasons we save. And again, our Catholic perspective on this savings aligns with prudence. Planning is not a lack of trust in God and scripture. I've mentioned this story a lot. Joseph storing up grain in Egypt. Scripture affirms preparation. Savings allows us to respond generously when God invites us to you know, one way I like to think of savings is, is this? We save not because we fear the future, but because we want to be ready to say yes when God calls. So that's why we save, right? We save for emergencies. We save for large purchases. We save for wealth building. We save not because we fear the future, but because we want to be ready to say yes when God calls. So what's your step what's your takeaway from this of those three savings buckets? Where are you the weakest? Maybe you need to open a savings account. Maybe you need to set emergency fund money aside. Maybe you need to start a goal based savings plan or increase automatic contributions, maybe you need to pay off debt. Where are you in creating a savings plan that is going to allow you to be ready to say yes when God calls. I hope this has been helpful. Thank you for joining me today. God bless. Thank you for listening to Catholic money talk. I hope you join us again next time, please click Subscribe on your podcast app to get notified of new episodes. God bless you and have a great day. Foreign