What is soft saving?
Soft saving is a financial strategy where the idea of retiring early (or at all) takes a backseat to personal growth, mental well-being, and more immediate fulfillment.
It is a financial strategy adopted by those wishing to lead a ‘soft life’; one with minimal challenges and lower stress.
Soft saving is characterized by a desire to enjoy the now, rather than save for a future that is unknown.
Accordingly, Gen Z are deprioritizing long-term saving and investing goals, at the risk of putting them behind the curve financially.
It links back to a study by Intuit on Gen Z culture compared to previous generations.
A proportional response
The natural reaction to such a seemingly reckless financial mentality is to be dismissive.
As a prudent personal finance practitioner, you may even want to condemn such an idea.
But soft saving may be a good, positive movement. It may represent a sea change in society; in the way we choose to live our lives.
Of course the next generation is engaging in soft saving. It is a natural, proportional response to the climate they grew up in and now find themselves in.
An unsettling adolescence
Every generation carries some sort of baggage and trauma from their youth. For generation Z, their ride has been particularly bumpy.
Their young minds were shaped and molded during times of economic hardships; the dot-com boom & bust, the financial crisis in 2007, and a frozen economy during the pandemic.
Though they were mere children and not yet earning a living, they were indirectly affected through the impact on their parent’s careers, lives, and finances.
The idea that your money habits emerge as a result of your personal experiences is one promoted by Morgan Housel in The Psychology Of Money.
Given everything Gen Z saw and personally experienced, you can understand why they might be disillusioned by the notion of working a corporate job and investing in a ‘stable’ economy.
This is compounded by the problems of today. Gen Z are entering the workforce at the tail end of one of the longest bull runs in history.
Now it’s their turn to save and invest, they feel far behind the previous generation. Asset prices are ‘too high’. They feel priced out of the market.
Of course, this is a fallacy.
Choosing not to invest because the market is ostensibly overinflated is pure market timing and a fool’s errand. They absolutely should invest now.
Convincing them of this fact is not easy, though.
With such an unsettling upbringing, full of terror attacks, war, and social injustice, amplified by pervasive social media posts spreading fear, young minds soak in a feeling of nihilism.
A feeling that life is meaningless, and the pursuit of the almighty dollar is hollow. Because with all the turmoil in the world it is unlikely we (they say) will reach retirement age.
A pandemic multiplier
It is easy to understand the apathy exhibited by Gen-Z when this decade, as they were entering the workforce, they were faced with a multi-year pandemic.
We know young workers were disproportionately impacted by the pandemic. It has stifled their development by forcing them to stay at home and stunted career growth.
Careers aside, being forced to stay home has undoubtedly lead to mental health issues for Gen Z. This in turn, has caused a tangible (and understandable) shift in their priorities.
“A healthy man wants a thousand things, a sick man only wants one.”Confucius
More of their spending is focused on mental health and life enjoyment. It’s a natural reaction to being deprived.
These are people who were forced not to socialize during arguably the most important time to socialize in their lives. These are people perhaps not living with anyone; moved out of home but not yet living with a partner.
The hopelessness of early career
Already at a disadvantage due to COVID-19, an interrupted education and stifled career development, now Gen Z must intern for little-to-no money just to get their foot in the door.
As if early career wasn’t hard enough, from the bottom of the ladder, the rungs must now seem insurmountable.
Every generation goes through feelings of inadequacy when starting their first job. It will be even harder for Gen Z to overcome confidence issues, workplace anxiety and steep learning curves.
And it is only if you can get through this stage, when you see light at the end of the tunnel, that your attitudes to the future start to shift.
The belief you can enjoy a wealthy life and build a retirement nest egg, becomes tangible.
Getting to that stage takes years of corporate grind, and that is a bitter pill to swallow. For many, they are turning to alternative ideas from their social media feeds as a result.
The influence of influencers
Soft saving and soft living is an apparent response to the so-called ‘hustle culture’.
However, many of the hustle-culture influencers are not advocating diligent investing for a comfortable retirement. It’s too dull.
Popular influencer & businessmen Alex Hormozi is one who advocates for investing in yourself vs. saving for the future.
For what it’s worth, I believe he is right.
At this age, you do get more value from investing in yourself. The returns on your knowledge investment will pay dividends over the course of your life.
But at the same time, it is easy to espouse such knowledge from the top of the mountain. The reality is that not everyone can be an Alex Hormozi.
Hormozi and other influencers are a source of inspiration, but also deliver feelings of inadequacy. It is not their intention; it is a byproduct of social media algorithms.
- Social media platforms surface the most popular content.
- The most popular influencers are accordingly the most successful and wealthy.
- Scrolling social media makes it seem like everyone is wealthy and successful except you.
With social media, you are comparing your behind-the-scenes with everyone else’s highlight reel.
So, when wealthy & popular influencers are telling you to engage in noble but risky entrepreneurial ventures (at the risk of your career and your retirement) you might be inclined to listen. Particularly when the alternative, the office cubicle, seems so unappealing.
Could this be fueling a more short-term (soft saving) culture? Is this even a bad thing?
Working to retire
Part of this trend is a rebellion against more extreme movements such as the FIRE (Financial Independence Retire Early) phenomenon, which is more associated with Millennials & Gen X.
These are generations deeply entrenched in the notion of The Nine To Five.
Many decide the only way to escape the rat race is to finish it as fast as possible.
You can see how Gen Z would see a race to the finish line as simply a race to your death, without any enjoyment in between.
They don’t want to work to retire. They want to live.
In my view, both perspectives are wrong:
- FIRE is pursued too aggressively by those who do not enjoy what they do every day. They feel trapped by their job and the luxuries it affords them.
- Gen Z do not appreciate that achieving FIRE is not the end of the road. It’s often the beginning of a new one. Becoming financially independent is a ticket to freedom and a true ‘soft life’ if you desire it.
Both movements can also lead to mental health issues:
- Becoming financially independent is one of the greatest things you can do for your mental health, but the aggressive pursuit can often come at a detriment to your health. Working a high-paying but soul crushing job for many years takes a toll.
- On the other hand, Soft saving as a means to improve mental health feels like you are addressing the symptom, but not the root cause. Ultimately, you may always be worried about having enough money in this lifestyle.
So, we revert to a cliché. In the end, it’s about finding a balance between these two extreme positions.
It can be done.
Your money and your life
The key problem with the notion of a soft life and soft saving is that it assumes the traditional lifestyle – working and investing for retirement – must come at a sacrifice to mental health.
The choice is not binary.
You can enjoy the present, live a relatively stress-free life, as well as work hard and save for the future.
Even small amounts of money can add up to large amounts of money in retirement. You can save a small percentage and use the rest to ‘living your best life’.
But know that each additional dollar saved and invested has the potential to grow and compound exponentially, as we will see below.
Not all dollars are made equal
I would urge soft savers to understand compound investing, as it highlights the true opportunity cost of not saving for the future.
Let’s say the soft saver manages to save $10,000 in their 20’s, and the ‘regular’ saver manages to save $100,000 in their 20’s (this is perhaps unrealistic, but humor me).
That is a $90,000 difference in savings, but not the true difference.
The true difference is what the money would become when invested over time due to compound interest.
- $10,000 invested over 30 years, at 8% interest, is $109,357.30
- $100,000 invested over 30 years, at 8% interest, $1,093,572.97.
You can see that the true cost of saving less in your life is actually $900,000 when you account for compound investment returns. Try it yourself on our compound interest calculator.
Soft savers need to appreciate that their future financial security, their future mental health & their dignity in retirement, is determined by the dollars they put aside today, while they are young.
The longer the money has to accumulate and compound, the better their financial prospects.
Even small increases in the money they are saving & investing can add up to exceeding large amounts, if they are willing to let time do its thing.
You don’t need to forgo any joy in life to have a wealthy future. I believe you can have your cake and eat it too. Our beginners guide to passive investing can put you on the path.
Die With Zero
As a counter point to the above, we have a fantastic book by Bill Perkins called Die With Zero.
Bill lived the ‘hard life’ as a hedge fund manager and has come out the other side with some ‘softer’ views on money.
It is a book published in 2020 and it accordingly feels appropriate and relevant to the needs of Gen Z right now.
Bill argues that the money you have while young is of more value than when you are old. You appreciate it that much more.
Furthermore, your ability to save and invest increases dramatically as you age. He argues that saving and investing can come later.
Ultimately, Bill is advocating for spending every penny you earn before you die, otherwise, you’ve worked for free and not lived the best life you possibly could.
Indirectly, Die With Zero is a philosophy very much in tune with soft saving and soft living.
Crucially, we are not forgoing a fruitful retirement. Bill still advocates for diligent saving and investing. But it is secondary to living a rich, fulfilling life.
I would urge soft-savers to pick up a copy – it finds a balance that might resonate with them.
Hope for the future
What will working life bring for Gen Z in reality? The answer is new opportunities we cannot yet comprehend.
- We feel sure that AI will lead to innovation, time saving, and new industries, though we’re not yet sure how.
- Remote working has opened the world up to a global workforce, with nomadic tribes of youths living however and wherever they choose.
- Virtual reality & metaverses are currently the butt of the joke, but a decade of technological innovation could change that.
All of these have the potential to give the soft savers what they want. More time to do whatever they desire, less stress, and lucrative opportunities that can make them as wealthy as generations gone by.
Wanting to work less and enjoy life more does not mean Gen Z are lazy. It is a natural evolution.
In 1926, Henry Ford standardized a five-day workweek, instead of the prevalent six days, with no cut in pay. Are we (the Millennials, Gen X and Boomers) lazier for only working five days a week?
In 2020, remote work became common place.
Flextime has become widespread.
4-day work weeks are being trialed around the world.
These are incremental improvements in living standards.
Gen-Z want it. Why wouldn’t they? Why wouldn’t anyone?
These small steps could lead to a happier, ‘softer’ lifestyle.
Soft living and soft saving just might be the future.