Gen Z Is All About 'Soft Saving,' but Here Are 2 Reasons Why It Can Negatively Impact Your Financial Health

Part of getting older is watching younger generations live their lives and feeling at least a little puzzled by their slang terms, their favorite musical acts, and what they do with their money. I'm not quite ready for the old folks' home yet; I am a millennial (although an older one). And when I heard the term "soft saving" (or #softsaving, as it is tagged on that most Gen Z of social media platforms, TikTok), I had to investigate further. So what is soft saving?

The idea of soft saving is related to living a soft life, another Gen Z trend (and one that I can absolutely get behind). If you're living a soft life, you're rejecting hustle culture and embracing self care, enjoyment, and good mental health -- all of which is important. Soft saving means you're not putting aside as much money for future goals, such as investing for retirement, saving money for a rainy day, and so on, and are instead spending more on enjoyment in the here and now.

Unfortunately, this can be a dangerous move for your finances. Let's take a closer look at two reasons why and explore some options for softer saving that are healthier for future you.

1. You'll miss out on compound growth

In personal finance spaces, it's very common to hear how important it is to get started with investing early. This is because the longer the time window you have to contribute to a 401(k) or IRA, the more your contributions will grow thanks to compound interest. When your money earns more money (say, as stock market returns) and is then reinvested, continuing to grow, that's compounding at work.

Let's say you start contributing to an IRA account when you're 25 years old, and you can save $250 per month. You invest that money in an S&P 500 exchange-traded fund (ETF), which measures the performance of the 500 largest companies in the market. The stock market's average return over the last 50 years is 10%, but let's be conservative here and say you earn 8%. If you retire at age 65, you'll have 40 years in the market and end up with more than $782,000. But if you wait even just 10 years, until age 35, to get started with this monthly investment, you'll end up with about $342,000 -- less than half of your total from before. If you wanted that same $782,000 return, you'd need to invest about $572 a month, more than double the $250 monthly tab that would have been sufficient a decade earlier.

Saving and investing can be difficult when you're just getting started and likely dealing with low wages, debt, or probably both. But as you can see, it's worth making the effort. And hey, if you contribute to a traditional IRA or 401(k), you'll lower your current tax bills.

2. Living without adequate savings is extremely stressful -- and expensive

Until very recently, I lived paycheck to paycheck without real savings, and let me tell you, it wasn't any fun. If you don't have an emergency fund, the first time you have an unplanned expense (and life is absolutely chock full of them), you'll end up struggling to cover that bill or going into credit card debt to pay it off -- and incurring interest in the process.

It's a far better move to save some money every month. Even if all you can afford is adding $25 or $50 a month to your savings account, when an emergency pops up, you will have some cash to tap that you won't be borrowing.

A lot of people find it hard to save because they simply don't earn enough to cover the bills and put money aside, and I absolutely get it. In my experience, the best way to free up money to save is to bring more money in. This could look like taking on a very part-time side hustle (perhaps 10 hours a week walking dogs or driving for a ride-hailing service) or asking for a raise at your main gig.

It's about finding a balance

So what's the solution? For starters, I caution against fully embracing any trend you happen to see on social media. I think you can find a balance between prioritizing your mental health, well-being, and happiness, and also planning for the future. If you have money left over after you pay your essential bills every month, I recommend allocating some of it for financial goals, like investing for retirement and building that all-important emergency fund.

Another option to consider is trying to reduce the cost of your fixed bills, such as your cellphone service, home internet, or car insurance. Shopping around for a new car insurer likely won't take you a tremendous amount of time, and it's certainly less painful than trying to cut all the fun spending out of your life -- especially if you're hoping to embrace a soft life.

Mental health, happiness, and comfort are all extremely important, and not just for Gen Z -- for all of us. But to avoid a negative impact on your personal finances, try to find a balance between saving and spending.