Much is written about how to save: “You there, you reckless spendthrift, come here and read my secret formula that will turn you into a prudent accumulator of wealth.”
Far less time is devoted to the difficulties of staying the course.
What are the techniques that will enable you to stick to your savings goals through the long days ahead? The times when your entire being just screams out for a foam-plumed latte with an extra fancy shot? Or those new shoes? Or that shiny, new car? How do you deal with the urge to splurge?
You need a defense-mechanism, my friend (and I’m looking in the mirror here).
Two tactics make the difference for me:
- The long-term goal
- My monthly savings target
The long-term goal
Knowing where I’m going helps keep my eyes fixed on the distant horizon. When I can imagine how wonderful journey’s end will be, I don’t resent every heavy plod that carries me one step closer.
My initial goal was an emergency fund. Then it became paying off the mortgage double-quick.
Other popular goals include:
- A comfortable retirement
- Income supplement
- Property purchase
- The kids’ education
Without my goal I’d have nothing to fight for. No ultimate dream that makes today’s sacrifice worthwhile.
But it’s important that dream is defined. That it’s a concrete number I can hit. Vague notions of ‘financial security’ are too woolly and abstract to sustain a long-term commitment. If the goal isn’t defined then you can’t draw psychic sustenance from beating your numbers.
Many are the days that I go into work and steel myself with the thought that the trials ahead will bring me a step closer to my endgame, provided I stick to my saving goals.
Note: Choosing too many savings goals is as fatal as failing to define any. When the enormity of the task dwarves your resources, then defeatism and failure will surely follow.
Savings targets
Defining your goal means setting a target. My long-term goal – financial independence and early retirement – was initially a large and distant one. A big problem can only be beaten if you break it up into many smaller problems that can be picked off one-by-one.
Creating the opportunity to win a string of handsome victories is critical to building morale, momentum, and ultimate success.
Set yourself:
- A yearly target
- A monthly target
If I can save (and therefore invest) X every month and Y every year then I’ll hit my target in W years.
Targets may have a bad rap in the NHS, but I’d never stay the course without them.
Knowing I have to hit my monthly target electrifies every spending decision I make. Every decision now has a purpose:
- If I don’t splash out then I’ve made progress towards my goal.
- If I do, it’s because I really want or need the thing I’ve bought.
Crucially, the target makes me think things through. I no longer make thoughtless impulse purchases that amount to money down the pan. (Well, not often anyway).
Budget control
One tool that helps me stick to saving goals is my Budget_Control spreadsheet.
It’s very simple. The spreadsheet:
Adds up income, subtracts spending, and shows what’s left.
It also sets predefined monthly limits for spending in cash and on credit cards. Knowing what those limits are – and checking how I’m doing every week using online accounts – enables me to ease off the spending throttle when I’m having a bad month.
I use monthly direct debits to siphon off cash into savings accounts and to a regular investment scheme. The Budget Control sheet enables me to watch with pleasure as that amount grows in the ‘saved’ row.
As is often noted, you soon learn to live within your new means when cash is hived off automatically. Human inertia can work in your favour!
How to use the Budget Control spreadsheet: You can download the spreadsheet via the link above. The numbers already in the sheet refer to the spending targets set for credit cards and cash. Choose your own. The cash category covers ATM withdrawals, BACS transfers or debit card payments. Most of my spending is on cashback credit cards (paid off in full every month), so most outgoings are tracked by knowing these numbers. I’m not one for painstakingly totting up every till receipt. Regular bills are paid on direct debit.
Any spare money (the surplus category in the spreadsheet) also gets saved and ultimately invested. This is a movable feast that depends on how successfully I’ve fought spending on cash and credit cards that month.
The tension between trying to stay within the spending limits and the desire to generate a savings surplus creates the drive to stick to the plan.
Tracking my saving and spending also enables me to set realistic saving goals that are within my means. Progress relies on those handsome victories referred to earlier. Constant defeat would soon stall the project.
Don’t forget too that target-adjustment will probably be required along the way as the rising tide of inflation laps at all our saving sandcastles.
Take it steady,
The Accumulator
One of the techniques that really helped me was a thirty-day embargo on consumer purchases. ie if I had a desire for some consumer item, stick it on a list and park it. If after thirty days it still seems like a good idea, go for it.
30 days gives enough time to reflect, and eliminated 95% of my purchases – by then I’d usually found a way round it or it simply didn’t matter that much to me anyway. It sterilises the power of advertising stone cold.
Obviously you have to make an exception for consumables and things like safety equipment, but it’s been a total cure for gadget addiction 🙂 Yes, you miss out on sales and stuff, but the saving on the stuff you don’t buy means you don’t need to care about that.
Another tip would be to automate your savings as much as possible – ‘paying yourself’ first, for example with a regular saver account (or two). In a way this gives you a monthly budget to stay within.
As you say, everyone should have a budget spreadsheet (if only to know what the biggest expenditure items are – and therefore to know which to tackle first) – but everyone should also have a ‘financial plan’ spreadsheet – showing how they think their wealth is likely to grow over the next couple of years. In my case, seeing how those early estimates were far exceeded, after only a couple of years has been a great encouragement to try even harder.
Excellent tips. Ermine, I think my equivalent of your 30-day rule is that I make myself research most purchases. That inevitably means they hang around on a ‘to do’ list for a good while before I get around to investigating possibilities. By then, the ardour has normally faded.
Moneyman, I like the idea of having a financial plan spreadsheet. Although I know what my target is and what I have to do to get there, I hadn’t thought to map out the milestones in advance. I guess if you keep the early estimates cautious then you’ve got a good chance of overshooting with all the positive affects that has on morale.
I fail at my savings goals because sometimes they are too lofty but then when I forget about it for a while but keep putting money away without checking it all the time, I feel like I have saved more. It must be a psychological thing.
Most of this detailed fiddle-faddle entirely misses the point. You got nearer with “How do you deal with the urge to splurge?” Easy: you have to train yourself to eschew the urge, to lose the lust, to curb the coveting. Then everything else is a piece of the proverbial.
The time to splurge is when you are retired and know what you can afford, and anyway have new desires that start to become close to needs. Fed up of clambering in and out of a bath when what you want is a shower? Finding it more and more difficult, or painful, or even dangerous? Then cry “Bathbegone!” and get the damned thing ripped out and a shower cubicle installed in its place.
But if you are thirty and are suddenly consumed by a desire for a brand-new car just tell yourself not to be a silly arse. Be zen: never yield to the yen.
To stick to a long-term goal I recommend that people graph out their savings, and net worth. It’s so easy to just see the short-term, but when you have a graph and chart that you can look at to see how far you’ve come, it motivates you. It’s the same with losing weight, if you chart it out in Excel even though you have a week where you gained a few pounds, when you zoom out and look at your progress it spurs you on that you’re on the right track, assuming you are of course.
Great post. I don’t know why (probably because of the Christmas season), but I have felt a huge spending urge the past few weeks. This has resulted in a couple of impulsive purchases, but luckily I have been able to take advantage of ‘Money-back guarantees’ the next day when I have recovered.
I use the “N Test”.
If it’s Need, I buy. If it’s Nice but not Need, I walk on by!
I’m somewhat agree with dearie-me. I’ve never messed about with spreadsheets and the like – because I don’t spend much in relation to my income. A £5 purchase isn’t worth worrying about, £10-20 makes me blink unless a gift to charity or a friend, above that takes a bit of thinking about and usually research. Splurging for no reason isn’t really in my nature.
That said, a ton of my salary is pre-allocated and squirrelled away before I even see it.
One tip I will offer against random purchases – see if you can find an unboxing or long term review on YouTube. You can enjoy the vicarious pleasure of ownership without having to partake. Even as a non-driver, I’ve occasionally thought certain cars were appealing and a 10 min walk through on YouTube is enough to convince me of their drawbacks and scratch the itch of ownership.
To be honest I too have never used a budgeting spreadsheet or really even had a formal budget written down in my life, either. Not even back when I was a student (and still a saver — albeit on a student grant and a bit of extra earnings of course) though I suppose I always had a rough tally in my head.
However so many people have told me they’re useful — even the stuff of epiphany, and including our own @TA — that I’m not going to argue about their usefulness, let alone describe it as “fiddle-faddle”.
As I’ve said before, spending less than I earn, forgoing pleasure now for hoped-for greater gains later, future-orientated perspective — whatever you want to call it I was born this way. I’ve achieved a few things I’m mildly proud of in my life, but saving a big chunk of what I earned isn’t really among them, because it was just so easy for me.
It has been no challenge, not because I’m a better or smarter or wiser person, but just because it’s how I’ve been wired for as long as I can remember. (I was doing a paper round at 10 and saving… technically some of even that money has been compounded into what wealth I have today!)
Other people aren’t like this though. When I first met @TA a couple of decades ago he spent every penny he earned (and then some) on the pleasurable here and now. And he certainly did seem to be having fun! 😉
His ability to turn that whole perspective around, to come out of something of a hole to now be approaching a relatively early Financial Freedom — that is proper impressive to me, and it doesn’t just happen because you wake up one day deciding to be different.
You need to take action, develop new habits.
No shame if you’re one of those people, and I hope this article helps you. 🙂
You touch on it, and a couple of other comments allude to it, but the single biggest thing that makes me stick to my savings goals is the power of the direct debit. If the money disappears without you having to do anything within a couple of days of pay day you don’t even notice it. It’s like it was never there…except it is there, invested or saved for you so that you can hit your savings targets and long term goals without having to think about it.
The real magic starts when you get a pay rise/promotion/new job and you change your direct debit to put most of that into savings so you’re not tempted to change your lifestyle very much. Instead your saving rate jumps upwards.
Your other strategies are definitely sound but for me they pale next to the power of automation.
Good article
Whilst I have not done too badly over the years, if I had have just stuck to simple regular monthly savings and investing with a cash buffer I would have probably done a lot better job.
I’ve made the mistake of chopping and changing and missing out on good times to buy in the last.
That’s one reason why I am now putting aside regular investments in stocks and shares as well over paying the mortgage.
Keep it simple safely
Its all about managing the wife’s expectations of meals out and holidays, if it was only me my spending would be a fraction of what it is, but the wife cant tolerate austerity like i can and i have to basically bribe her to not get fed up with her life with me.
So the spending doesnt give me direct pleasure but I suppose it avoids a lot of nagging and eventual loneliness
Luckily she doesnt give a monkeys about cars etc so i am still able to save and meet her requirements.
She doesnt like work but doesnt do long term targets, mother in law is actually peed off with me for pension saving at the cost of taking her daughter on holidays, but on net the mother in law appreciates the stability i bring
Great post! – Long time reader, first time poster.
As an engineer I’m a natural spreadsheet junkie. The things I found revolutionary were:
1. Having 4-5 yrs of historic monthly data points (net wealth/income) to graph and see my hard work having results.
2. Having a “Fun Fund” that automatically gets a small cash injection each month if I hit my savings target (Incentives are powerful things). This is the guilt free spending pool for motorbikes, electronics etc. This forces me to prioritise and be creative, but still lets me buy a depreciating asset if it’s fun enough.
My fiance also has her own spreadsheet which she loves updating each month and I am excited to merge our sheets in the next few weeks. It’s because of these practices that we are now able to take a 6 month honeymoon without much fear of it impacting our financial situation.
Marginal gains manifest magnificence.