When it comes to finding balance in your spending, standard advice says that you need to make a budget. How successful is that? One survey found that 74% of consumers say they have a budget, yet 79% fail to follow it.1
So, how can we flip the script on this story?
We break down how you can create a saving and spending plan that sticks.
What Is Balance?
When thinking about balance, it’s easy to imagine a scenario where you don’t have to keep track of your spending, and everything always goes according to plan. But the reality is that no budget or spending plan is ever going to be perfect. Creating balance in your spending starts with creating direction and then adjusting along the way because, as we know, life happens.
Circumstances might change where saving money isn’t possible for a period. On the other end of the spectrum, you may experience a windfall that takes care of some savings goals. The point is, there will always be events or things that come up that we didn’t plan for, both good and bad.
The real purpose of thinking about saving and spending as a balance is that it allows you to have parts of both. You can live the life you want, while also meeting goals – it’s just about doing both with intention.
Clarify Your Purpose & Goals
Start by focusing on two different viewpoints: how much money you need to spend to live life now, and how much you need to save to fund your future goals and lifestyle.
It can be tough to prioritize saving when there are so many opportunities to spend but uncovering the ‘why’ behind socking money away can help to create deeper meaning and purpose. One way to do this is by tying your savings to a tangible goal. Big goals, like a second home or saving for college are of course the gold standard here. But if you’re just getting started, setting and reaching a smaller goal that is achievable in a short time frame is a good way to get a positive feedback loop going – one success will help you achieve more difficult goals.
It’s much easier to stick with a plan when you establish a goal and build around it because you can see the progress over time, and you have a defined dollar amount that can serve as a North star, rather than trying to save money with no end or reward in sight.
Make & Revisit Your Plan
After you’ve laid out why and what you’re saving for, you can begin creating a balanced plan that makes it possible to enjoy life today while still saving for the long term. Remember that no plan is perfect, and adjustments will need to be made over time when getting started. The most important thing is to get started and build momentum in the right direction.
One of the first steps to finding balance in your spending is to figure out how much you need to spend each month to cover regular expenses such as housing, bills, food, and entertainment. This can be done by reviewing your last few months of spending. Then determine how much your goals cost and what savings you need to fund your future lifestyle. Once you have those numbers, you can then figure out how much you need to be saving each month and each year to reach those goals.
As an exercise to get to the number that works for you, try to set three scenarios – minimum savings, maximum savings, and a compromise between the two. Minimum savings will allow you to make minor changes to spending; maximum will usually entail significant cuts to current spending. Seeing it all on paper can make it easier to make the decision of what to cut. It can also make it easier to stick to.
Generally, it’s recommended to save around 20% of your income towards goals and investments. This may be accurate for your situation, or you may have to adjust the percentages, so they align with where you want to go. This is where a little bit of planning comes in. Most likely, the initial plan won’t be perfect. It’s essential to frequently revisit the plan to make necessary changes and ensure everything is still on track.
Pay (or Tax) Yourself First
If you struggle to save money consistently, an effective way to build a savings habit is by paying yourself first and automating your savings. One way to think about it is like putting a savings tax on yourself. For example, you could set up a transfer so that a certain percentage of your paycheck is automatically transferred to your savings account every time you get paid, just like how 401(k) contributions are made before you receive your paycheck.
This helps remove the human error from trying to remember to make a savings transfer each month and the more you can do to spend less time managing your finances each month, the better. But the best part about paying yourself first and saving money before anything else is that by doing this, you can spend the remaining money guilt-free because your savings goals would already be taken care of.
In addition to this strategy, using a budgeting app such as Mint or You Need a Budget can also help keep spending in line. These apps automatically keep track of transactions and can alert you when you’ve maxed out spending in specific categories for the month.
Whatever approach you decide to take, maintaining a balanced spending and savings plan comes down to getting clear on what’s important to you, being intentional with your spending, and setting up a plan that fits your lifestyle.
When it comes to personal finance, a lot of things are out of our control. We can’t predict stock market returns or changes in interest rates, but we control our spending and saving habits. Finding balance in your budget isn’t about being perfect. It’s about being flexible, taking the right actions, and adjusting as life changes.
We never know what tomorrow holds but by creating a financial plan that prioritizes living for today while still stashing away money for the future, you can begin finding balance in your finances.
- O’Brien, Sarah. Consumers Overspend By $7,400 a Year. Here Are the Weekly Splurges That Cause The Most Trouble. CNBC. December 26, 2019.
The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.
This content not reviewed by FINRA