Do you have an either/or mentality when it comes to saving vs. lifestyle? If you stress out overstretching your paycheck to cover current spending as well as long-term financial goals, you are not alone. Research shows that 21% of workers report “high” or “overwhelming” levels of financial stress.
If you are one of them, take heart: Saving is not about vacation vs. dream home vs. retirement security. Follow these steps to create a lifestyle where fun and solid finances are both part of the plan:
Step 1: Master the psychology of saving vs. spending.
Money decisions seem more empowering and less of a sacrifice when you are saving toward goals that excite and inspire you or increase your sense of financial security. You feel less deprived when your resources are funding what matters to you most. A customized plan in which you set your own priorities helps you approach money management with a positive outlook.
Step 2: Assess your current situation.
Know where you stand, then create your new normal:
- Understand your cash flow. You cannot allocate funds to your life priorities if you do not have a handle on how much money is coming in and how you spend it. Examine and record your weekly spending habits in detail.
- Establish short- and long-term financial priorities. Is there a disconnect between what you consider important and where your money actually goes? Typical top priorities include an emergency fund, debt reduction, and retirement. Your list may also include home and car buying, and pleasures such as travel, entertainment, and hobbies.
- Reallocate spending. Budget outgoing cash so that it flows first to what matters most before any other outlay. If you find that your budget does not stretch to incorporate pleasures, avoid dipping into savings as your default coping strategy. Instead, scour your cash flow to find cuts you can make in discretionary spending to pay for favorite pastimes.
Step 3: Limit monthly bills.
Be aware that each time you add to your “must pay” monthly bills—rent, mortgage, utilities, student loans, cable TV, credit card debt, car payment—you cut into what is available for your other priorities. Think twice before you charge that top-tier cable service or trade-in a reliable car because you fancy the newest model.
Step 4: Beware of ‘Lifestyle Creep’
- View a pay raise or financial windfall as an opportunity to reach financial goals more quickly—not a chance to add luxuries to your lifestyle that divert income from your top priorities.
- To halt lifestyle creep, immediately incorporate increased income into your automated savings strategy (see below).
Step 5: Automation is your friend! Set it and forget it.
Digital banking makes it easier than ever to automatically stash away savings before your paycheck even hits your checking account. A commitment to pay yourself first and live on “what is left” jump-starts your effort to meet future goals.
- Set up automated triggers to direct money into multiple savings accounts. Automated saving works well for your emergency, retirement, and investment funds as well as accounts for travel, house down payment, new car, etc.
- Direct an automated contribution to your 401k. Consider “auto-escalation” to increase your contribution gradually so you hardly notice.
- Do not forget fun! Everyone needs a vacation, road trip, or self-care indulgence once in a while. Make one of your automated deposits a “fun” fund where you save for random and planned adventures and luxuries.
Step 6: Revisit and Revise
Schedule periodic reviews of your budget and savings plan to make sure you stay on track with goals and adjust to any changes in priority (wedding, new baby, move to a new town).
If you feel overwhelmed by all the goals that compete for your money, reach out to FJY Financial. We take a holistic view of who you are and what matters in your life. Then, we work with you to create a comprehensive financial plan that supports your most important goals, now and in the future.