I recently received the following comment from a reader:

I liked your article, “Saving and Investing is Possible, Simple, Urgent, and Valuable.” My one concern is the following. Don’t families need to balance retirement savings with other needs such as purchasing a home, saving for a child’s college expenses and other needs? Too many articles seem to focus on retirement savings. What do you recommend?

If you start saving for retirement while you are young, retirement only requires saving 15% of your lifestyle spending. The longer you delay, the greater the percentage you will have to save. Retirement savings should be prioritized ahead of many other desires. Retirement savings is more important than saving for a child’s college expenses in part because no one will loan you money for retirement. Similarly, retirement savings is a higher priority than buying a house. The house you live in is not an investment.

Ultimately, whatever you are saving for instead of retirement is postponing your retirement.

You cannot you save toward a new house, a Lamborghini, a cruise to Puerto Princesa, or even a Louis Vuitton handbag and expect that postponing saving for your retirement won’t have consequences. Financial security and independence is based on living well below your means. Saving and investing is critical. Anything which is not contributing toward your financial independence should be considered part of your lifestyle spending.

Perhaps I have just seen that too many young families live for the moment and fail to plan for their own futures. I reserve the word “saving” to refer to money that is invested and only spent in a manner that is sustainable. If I am saving for retirement I am saving for my financial freedom. On the other hand, if I save $10,000 per year for five years and then spend $50,000 on something, I would not say at the end of this process that I had saved anything. The $50,000 is just $50,000 of lifestyle spending. I only deferred my consumption for a brief period of time.

We are prone to impulsive spending, but a millionaire mindset works to overcome those impulses and curb our worst habits. Saving for large fast-approaching expenses is not actually “saving.” It is simply the budgeting required to manage our cash flow so as to avoid borrowing from our future self.

Therefore, the short answer to “How should families balance retirement savings with other needs?” is this: Spend less, so you can save for retirement while you budget for upcoming required expenses.

Photo by Aziz Acharki on Unsplash