It’s not easy to save for the future. Every day, there are new opportunities to spend money on your favorite fashions, jewelry, hobbies, restaurants, or movies to name just a few of the options. You don’t even need cash most of the time, since using a debit or credit card is so convenient.
But if you want to take control of your finances, and plan for the future, it’s time to take a close look at your spending habits. After all, every dollar you spend today is one less that’s available for tomorrow. If you want to buy a home, send a child to college or enjoy a comfortable retirement, you need to start saving for those long-term goals.
Starting a savings program is also a good way to mitigate some of the financial risks in life, such as damage to your car or an unexpected medical or dental problem. If you lose your job or suffer a cut in your income, having savings in the bank can reduce some of the financial stress and give you time to get back on your feet.
Along with serving as a rainy-day fund for emergencies, your savings can also provide a foundation for a long-term investment program. A financial advisor can help you draw up a game plan based on your goals, age, risk tolerance and other factors.
Understand your habits: If saving money is so important, why is it so difficult for many Americans? The answer can be summed up in two words: discipline and knowledge. First of all, it takes a certain amount of mental discipline to resist all those tempting half-off and BOGO sales, and the countless other spending opportunities.
But you also need to understand your current spending habits in order to shift some of those dollars into savings. One of the best ways to get a handle on your financial situation is to start a monthly spending journal. Use a personal finance app on your smartphone, tablet or laptop, keep a pen and paper nearby and to write down every time you make a purchase.
Keep two columns on your spending journal. One would be for your cash, check or debit card spending. This is money that has gone out of your bank account directly, making it track.
The second column is for credit card purchases. This is money you owe, but haven’t actually spent yet. If you put $1,000 on a credit card this month, you could pay the entire amount, a minimum payment or something in between. As a result, your card purchases could be higher than you think, with serious consequences for your financial situation.
Your wants and needs: Keeping a spending journal can also help you separate your wants from your needs. For instance, you probably have certain basic monthly expenses, such as a rent or mortgage payment, utility bills, food, and work-related travel costs. These need-related expenses typically are about the same from month to month. They can also be difficult to cut, at least in the short term.
But your journal should also give you a clear picture of how much you are spending on your wants — the discretionary purchases that can put a big hole in your monthly budget and keep you from meeting your savings targets.
Perhaps you would like to buy a new pair of shoes every month or dine at an expensive restaurant once a week. Or maybe a delivery truck drops a package off at your front door several times a week. It may be fun to spend the money and have a good time, but not if too much spending is putting financial stress on your life.
If you decide to keep a journal, talk with other members of your household and explain the importance of tracking everyone’s spending. Some people are frugal, while others are not, and you should be able to look at how their behaviors affect your household finances.
Look at income as well: Along with tracking your spending, you should also pay attention to your monthly income. That’s usually easy to do if you get a regular paycheck. But even if you’re an entrepreneur, you should still be able to get a sense of how much money is coming in the door each month.
If your monthly income is higher than your spending, congratulations! You may already be putting money aside for the future. But if the reverse is true, you should look closely at cutting your spending so you don’t wind up spiraling into debt.
After all, excessive spending can be a problem, regardless of your income. A moderate-income family with a balanced budget may be better financially prepared for the future than a high-earning corporate executive who spends every dollar on luxury items. So, look at your spending and start a new savings habit.
Andrew Menachem, CIMA®, is a wealth adviser at The Menachem Group at Morgan Stanley in Aventura. Views expressed are those of the author, not necessarily Morgan Stanley, and are not a solicitation to buy or sell any security. The strategies and/or investments referenced may not be suitable for all investors. Follow Menachem on Twitter @AMenachemMS.
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