Over the weekend I reflected a bit on where we stand financially, and where we were several years ago before beginning our journey to live debt free. A few years ago, when we were buried under a smothering debt, there weren’t many opportunities for vacations and luxuries. We lived a very frugal existence.
Spending decisions were pretty easy back then. We spent the bare minimum for just about everything to free up as much income as possible to repay debt.
As we began paying off debt, our discretionary income increased, and while there was some pressure to spend more, we still had our eyes trained on the debt before us and it seemed easy to keep plugging away on the debt.
Eventually, we managed to whittle away all our non-mortgage debt, and were faced with the challenge of saving money. I’ve alluded to these struggles before in previous posts, and I keep coming back to this point in our financial turnaround because it seems to be such a pivotal moment in financial maturity.
When you get back to zero, you basically have three options:
- Spend everything you earn and stay in the same spot.
- Spend more than you earn and go back into debt.
- Spend less than you earn and begin to build savings.
Unfortunately, option 1 seems easiest at this point. After all, you’ve been paying off debt for months (or years) and it is easy to justify taking a breathe from a Spartan existence. We can just hang out here for a few months and enjoy the things we’ve been missing out on while paying off debt. That’s a slippery slope. Soon, you might find yourself spending more than you earn and falling back into debt.
To build savings, you must continue to live much the same way you did while getting out of debt. Sure, you can add in a luxury or two, but keep in mind that every new service you sign up for, every new item that must be maintained and/or insured (a newer car, for instance), reduces the amount of discretionary income you have left over to devote to savings.
Adding too many of these things is often described as lifestyle creep – which Investopedia describes as:
A situation where people’s lifestyle or standard of living improves as their discretionary income rises either through an increase in income or decrease in costs. As lifestyle creep occurs, and more money is spent on lifestyle, former luxuries are now considered necessities.
Of course, the key to avoiding lifestyle creep is to find contentment in the things you already own. That’s tough to do in a world where the ownership of every new technology product is pitched as the difference in life or death.
Did you hear the story of the kid in China who sold a kidney to buy the new iPad 2? Seriously, you can’t make this stuff up!
The newest technological rage is Apple’s iPad 2. Like any new gadget, it will be outdated about the same time as that carton of milk in your refrigerator.
Zheng, a 17-year-old high school student in the Anhui province of China, didn’t know that. Or didn’t care. He was so bent on getting one that he sold one of his kidneys to an internet broker for 20,000 yuan (about $3,000). After the April 28 operation, he used part of the money to purchase the iPad.
Check out the rest of the story at MyTotalMoneyMakeover.com
Fortunately, most of us aren’t willing to part with a kidney to buy the latest fad, but many of us will part with a large sum of our hard-earned paycheck. And that chunk of money could be set aside for saving and investing.
So how does one motivate themselves to save money? Here are three strategies I’ve used personally to motivate myself towards saving money, instead of spending it.
#1 Set a Target
While deep in debt, my target was easy to spot: $0.00 in non-mortgage debt. Once we arrived there, the next target was largely undefined. I set a big goal of having one year’s worth of expenses in cash as a sort of super emergency fund. The bad part about setting such a large goal is takes a long time to achieve, and often you reach burn-out before you cross the finish line.
Instead, set a goal that is attainable in just a few months, like saving for a cash-only vacation, or saving enough to invest in a Roth IRA, etc.
#2 Pay Yourself First, and Last
We’ve all heard the idea of paying yourself first. Makes sense. Transfer money into savings vehicles as early in the month as possible – right off the top of your paycheck is ideal, as many of us do with 401k contributions. I also like the idea of paying myself last, sweeping any money left in our checking account at the end of the month over into a savings account so it is harder to spend.
#3 Make it Visual
Many kids’ savings products advise parents to find or print a picture of something kids are saving for and place it prominently near their savings jar (or piggy bank, whatever the case may be). I find this works well for adults, too.
If you are saving for a new car, or a pool, or a down payment on a new home, print a picture and put it on your refrigerator with the dollar goal you’d like to save. Print a miniature version for your wallet to remind you of your goal the next time you reach for your credit card inside a store.