Much is written about how to save [1]: “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 [2]
- 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 [3]. Then it became paying off the mortgage [4] 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 [5] 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 [6] any. When the enormity of the task dwarves your resources, then defeatism and failure will surely follow.
Savings targets
[7]
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 [8]) 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 [9] 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 [10] 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 [11] laps at all our saving sandcastles.
Take it steady,
The Accumulator