Do I have to give up my current life style to save for my future?
I recently read that Americans are behind on saving for retirement but that they are taking steps to catch up. While that’s not a surprise to any of us, and I’m happy to hear we are trying to catch up, but the article focused on all of the things people are cutting out to save money. It just seemed so depressing. The article made me start thinking of all of the ways to enjoy an abundant life now and yet be prepared for an ample and enjoyable future.
Believe me, I am all for cutting out junk and dumb spending, but I don’t believe you have to live like a miser to afford retirement, you just need to be a little more thoughtful, intentional and don’t wait too long to get started. The one thing I have seen over the years of working with clients is that everybody has their “thing” they’ll spend money on. I have a client that loves to travel to exotic places so she will spend, what some would say is an exorbitant amount of money on travel but at the same time, she doesn’t turn on the heat in her house in the winter—she tells the kids to put on a sweatshirt (granted they live in California so maybe you can get away with this) but she puts that money in her vacation fund. I’ve heard about other people that spend over $20,000 a year going out to eat but because of their business they rarely travel so instead they choose to eat out twice during the week and twice on the weekend which makes every week a holiday for them.
Track and create awareness
What I advocate to clients is that they first figure out where their money is going. Most people have no idea where they are spending their money, they just know they don’t have any left over at the end of the month. Track where you spend your money for a month or so. You might find out that your cable bill is $400 a month and you don’t even watch TV. When you first signed up for cable it might have only been $100 but it’s slowly creeped up, you have a $60 gym membership but can’t remember the last time you were there. These are the kinds of expenses that I am talking about. Now you know where your hard-earned dollars are going, you can make an informed decision. Do you want to spend almost $5000 a year on something you don’t even use? Awareness is the first step.
I think most people would rather go to– insert least favorite medical procedure (think root canal), than set up a budget. Yes, the dreaded “B” word but if you are not living your dream life and saving for a fantastic future you need to rethink what you are doing. I am not asking you to create a spread sheet and track every penny for the rest of your life….I am asking you to take a look at four different spending categories:
- Fixed Costs- housing, utilities, debt, etc.
- Investments- 401(k), IRA, etc.
- Savings Goals- Vacations, emergency fund, down payment for 1st house, etc.
- Money spent intentionally on things that make you happy- eating out, clothes, shoes, sports
For example, if you bring home $6000 a month, typically you should strive for:
Fixed costs (60 percent): $3,600 / month
Investments (10 percent): $600 / month
Savings Goals (10 percent): 600 / month
Intentional Happy Money (20 percent) $1200 / month
If your current spending does not fall into this 60/40 model, take a look at where it does fall. Are there any obvious things you can cut out? I am not suggesting you radically change your spending because that rarely works. I find it usually works better if we slowly incorporate change in our lives in order for the change to be sustainable. The goal here is to eliminate things that are not enhancing your life so that you can spend more money on the things that do make you happy.
Now look at you! Last month you didn’t even know what you spent your money on and this month you are analyzing categories.
Ask for help
As always, if this is something that you would like a partner to help get you started or someone to bounce ideas off of, please give me a call. I am more than happy to help you get your budget started so you can be on your way to living a happy life while saving for a time where you will be financially independent.