Since When Is Saving Considered An Expense

I was having a conversation this morning with someone about in-laws, technology, advice and just kinda shooting the breeze when we touched on the topic of extended warranties.

I mentioned the post I read over at Five Cent Nickel about creating your own extended warranties where you essentially create a separate savings account, put money you would normally pay for an extended warranty into your own account and if 1/10 things you normally would have purchased an extended warranty for breaks, you can pay for that yourself and still save a good amount because you didn’t buy the warranty for all the things that didn’t break.

I got a somewhat puzzling response. My buddy said to me, “Well, you could just not buy the warranty, not put the money into savings and then you wouldn’t have spent that money in either way”.

This made it sound like he was considering putting money into savings an expense

I had to stop and think about that a bit, are our savings accounts expenses?

Thinking about this more and more, he is not the first person that has said something like this before. I recall another situation I was talking with someone about how I have multiple accounts and move money from my main account to external accounts so that I don’t touch the money. They acted like moving the money out of the main account was as bad as just spending it.

I know I am not the only one around here that moves money from a landing account to an external account, so it won’t be spent and thus can be saved with more dedication, out of sight, out of mind, but I have never considered this an expense.

I can honestly say I have never lived paycheck to paycheck meaning I have never had to pay out everything that came in but I imagine that living paycheck to paycheck may give someone this kind of attitude towards saving. The money that could be spent on paying things like bills is instead tucked away and not used.

Even more interesting is that this friend of mine makes a heck of a lot more money than I do.

Have you ever run accross this mentality, that saving is an expense to be avoided?

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5 People have left comments on this post

» JoeTaxpayerNo Gravatar said: { Oct 23, 2009 - 12:10:45 }

It’s not an expense, but for it to count as the “self-insurance” fund, I’d not keep it on the balance sheet, either. People have different takes on this and human nature isn’t going to comply with GAAP principles either.
My own dilemma – do you call pre-paying a mortgage savings or spending? Whether I send that extra $1000 to the bank against the mortgage or send it to a savings account, the balance sheet impact is the same $1000 to the better.

» Jesse MichelsenNo Gravatar said: { Oct 24, 2009 - 05:10:23 }

I agree, I think in the case of the self-insurance it should be separated from emergency funds or savings, though I don’t think I would be incredibly strict with it. I would probably include it in my net worth, because in a worst case scenario, emergency fund drained, etc, I would use it.

I’m torn on the mortgage thing. You make a good point that pre-paying and saving impact the balance sheet in the same way, technically. For me, the mortgage takes a back seat to other debt and other savings goals. Once they are complete, then I would push towards paying off the mortgage but until then, I would consider the mortgage spending on low priority debt repayment’ as apposed to consumer debt which is high priority debt.

» LuluNo Gravatar said: { Oct 28, 2009 - 08:10:33 }

I am not sure how those people are thinking but I am in the middle on this one because I consider saving to be a ‘bill’. Instead of an expense in the negative way, I treat my savings like a bill that I have to pay. So instead of saving what is left at the end of the month, I ‘pay’ my savings account (sub account in ING) on a regular basis just like the electric bill or a credit card bill.
.-= Lulu´s last blog ..Disconnected: What An Overheard Conversation Taught Me About Finances =-.

» Jesse MichelsenNo Gravatar said: { Oct 28, 2009 - 11:10:58 }

Well, I think you have something here because the way you put it, it’s a bill but without the negative spin that expense has. I agree that it is something you are billing yourself for, or making yourself do, but it’s not an expense like the water bill with a negative, I’m losing this money, feeling.

Way to stir the pot and keep us thinking 🙂

» InRhodeIslandNo Gravatar said: { Dec 27, 2010 - 10:12:50 }

You can list it as an “expense” if you are trying to track where your money is going at the end of the month. This type of budget can be termed a “zero based” budget. Meaning that every dollar, better yet every penny, has a name. This way you always know where your money has gone -Where you have told your money where to go ;-). So my belief is this: Even though it is not an expense, you should list it as such so that you won’t spend that cashflow throughout the month. If you are going to buy something, you save for it -end result is an expense. If you have an emergency, it’s an expense anyways. Some might get confused because of this and not save at all. THAT IS NOT GOOD! Have an emergency fund in place! Check out Dave Ramsey, pretty good stuff.

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