Being frugal and avoiding making smaller purchases constantly (such as eating out or a daily coffee habit), is certainly important, however relying on this alone to save your budget may be difficult. Relying on your willpower to constantly decide between ordering a $20 meal or cooking a $10 meal can be frustrating and challenging. To ensure your financial future, spending less on bigger ticket items such as your mortgage and car payment may help you to consistently save more. Plus, the decision on how much you spend on these two purchases happen much less frequently than the eating out choice – so you don’t have to exercise will power on a daily basis, at least for your financial life. Skipping the chocolate cake may take alternative strategies!
Generally, when I approach cash flow with clients, we first must get a grasp of where the money is going. How? We detail out the fixed expense and look to credit card and bank statements to help fill in the blanks. We break things down by category and review the percentage of income that each category represents. Which items represent double digit percentages of your annual spending? Is that truly a priority line item in your budget or have you just lost control of spending? Once we make some of those decisions, if savings is still not where we’d like it to be, we look to the bigger ticket items – housing is generally the largest, followed by car payments and/or student loan payments. Some of those items require more significant lifestyle changes than skipping the daily latte but it’s important to evaluate all possibilities. If you are entering into a new housing decision, it would be a good idea to consider if you really want to push the envelope and buy at the top end of your mortgage qualification range.
Spending less and saving more BOTH help accelerate your path to financial independence – more of a nest egg plus a more modest lifestyle makes it easier to eventually replace your employment income with investment and Social Security income.
The path to financial independence is best started young. If you apply these guidelines early in your life you will likely be financially independent much sooner than your peers. In fact, half of all supersavers plan to retire before age 65 (TheHarrisPoll) while 57% plan to retire earlier than their parents. If these sound like good goals to have in your life, then maybe you too, should become a super saver.
Feeling like that ship has sailed? Not so “young” anymore? All hope is not lost. I have worked with many families to fine tune their savings in the last ten years before retirement – trimming budget items, prioritizing, and accelerating savings. It can be done – you just need to have a plan.