Here’s a neat strategy if you look to save more for retirement, college or for paying down debt: Stop spending on the wrong things. Easier said than done, of course, and implementing this tactic starts with changing how you look at using your money.
Whenever we’re shopping at brick-and-mortar retailers or online, we’re always tempted to purchase things we really don’t need. I was at the store the other day and tried on jeans. Did I really need them? No.
Did I want the jeans? Of course. You know the situation: wanting something and at the time realizing that you most likely didn’t really need it.
You’re not alone: American consumer debt shot up recently by the most in more than six years, according to a report by the Federal Reserve Bank of New York. Americans’ outstanding consumer debt was $3.24 trillion as of last summer. Total U.S. outstanding revolving debt, chiefly made up of credit card balances, was $880.5 billion as of last July.
Don’t depend on a raise to help with what you owe. For most U.S. workers, real wages (after accounting for inflation) remain flat or even declined over the past several years, no matter how the overall U.S. employment situation changed. Average hourly wages still lag behind the increases before the Great Recession.
So spending within your means is up to you more than ever. To save more, learn to pinpoint when your wants come disguised as needs.
True, some items are exceedingly well disguised: When I discuss this subject with students I teach, one contentious item is smartphones. Many students say they need the pricey devices but also admit that they can, if necessary, live without.
Here’s the fun part when you shop. Since you planned on spending money for something you didn’t need, why not buy something anyway? Something you do need, such as retirement income, college tuition, less debt or a strong emergency fund of a few months’ expenses?
Chances are you can access your bank accounts online or through your smartphone (assuming you bought such a phone as a need …) and odds are good that you set up your bills, retirement accounts, educational accounts and the like to receive your payments online.
When you realize that you don’t really need to buy the item you have your eye on, apply its price to your retirement, college, debt or emergency fund. On your computer or smartphone, open your bank’s app as soon as possible and zap the money that you almost spent to an appropriate account.
You seriously thought about spending the money anyway. Better now that you spent on a serious need rather than a transient want. (Trouble differentiating wants and needs? See this easy primer on the subject.)
You’ll be amazed how much small contributions add up in your favor rather than subtract from achieving your goals for the future.
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Sterling Raskie, CFP, is an independent, fee-only financial planner at Blankenship Financial Planning in New Berlin, Ill. He is an adjunct professor teaching courses in math, finance, insurance and investments. His blog is Getting Your Financial Ducks in a Row, where he writes regularly about investments, retirement savings and financial planning.
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