Rational explanations for not saving typically follow expressions like: “I’d like to save, but…”, or “I think saving is important, but…” Intuitively, we know we should save. The importance of saving is often passed down through scripture, or through fables, and learned at an early age. Yet saving largely remains an abstract imperative. Why? How can we make saving a more consistent practice? First, we must understand three things:
Saving is hard. Saving money is much harder than most people like to admit, financial professionals included. Saving is especially hard when we feel like we cannot meet basic living standards, or live up to social expectations. While saving may be impossible when we cannot fulfill our basic needs, when our basic needs are met, opportunities for saving arise.
Saving requires deferring to our future selves. We live in the present, and are culturally trained to desire instant gratification. Saving contradicts this conditioning. As with any other financial management strategy we decide to pursue, saving must be directly guided by our goals. When we know where we are going, what we are trying to achieve, then identifying what we need in order to do so becomes an easier task. In other words, by clarifying for ourselves – and for those whom we hold close – what our goals are, we create a brighter contrast between our needs and our wants. This facilitates daily decision making that keeps us on track. It allows us to keep our eyes on what we achieve rather than on what we are giving up. Managing trade-offs becomes easier when we focus on what we gain.
Saving can be more than putting some of our discretionary income aside into a savings account. If we feel unsuccessful as savers, perhaps we have viewed the process somewhat monolithically. Saving can involve multiple aspects surrounding our personal finances.
The following list is intended to help broaden our concept of saving and the strategies we might choose to pursue in this endeavor.
- Identify your goals: What motivates you?
- Identify what you are saving for. Be specific.
- Use a spending plan (budget), and be intentional about your cash flow system.
- Seek strategies that facilitate productive behaviors, and that reduce or eliminate unproductive habits.
- Pay yourself first – Treat savings like another bill.
- Automate savings
- Include your family in the financial planning process.
- Eliminate unnecessary fees, or payments. Examine your bills and account statements.
- Identify what benefits you’re eligible for, and what resources are available to you in your community.
- Manage your taxes:
- Seek help in managing your taxes (denverabc.org).
- Use calculator on IRS website to determine appropriate tax withholdings from paycheck
- Maintain or improve your credit standing.
- Reduce debt strategically.
- Credit cards are not emergency funds, use them strategically: avoid using more than 25% of your credit limit, and pay off your balance every month.
- Pay more than the minimum on your credit card: you’ll save on interest and reduce your debt burden faster.
- Manage student loan debt: you may be able to reduce your monthly payments, or in some cases, have your loans forgiven or discharged.
- Buy used, or the previous year’s model, when purchasing a car.
- Factor being able to make an extra payment a year on your mortgage as part of a house’s affordability.
- Practice frugal living:
- Car pool
- Reduce utility consumption
- Practice comparison shopping
- Actually save money “saved” when purchasing items on sale, otherwise we may spend less on a particular item, but we are not actually saving, since it will be spent elsewhere.
- … (How else do you practice frugal living?)
- Shop for insurance regularly (especially when there is an improvement in credit scores).
- Consider a spending fast.
- If you’re not banked, get banked. Consider joining a credit union.
- Seek support. You don’t need to engage your finances alone. Consider seeking neutral professional assistance.
This list is not exhaustive. Please comment and share other strategies you have put in place in order to save.
Guest Contributor: Carlos A. Colón, AFC®