Why is saving money so hard sometimes? It seems there is always something vying for the precious dollars we attempt to save. Sometimes savings doesn’t happen because of the bumps in life, like a medical issue, a job loss or an auto accident which requires immediate action. Sometimes it is because there are so many impulses vying for our money. Between TV commercials, social media, influential friends and peer pressure we are bombarded with reasons to spend instead of save. And there are many other reasons why we struggle to save. From a recent poll done by Forbes, here are the four top reasons Americans said they either could not or do not save:
- Spending Money Offers Positive Short-Term Feelings, While Saving Money Does Not
- Financial Goals Typically Take a Long Time to Achieve
- Life Always Seems to Intervene
- Unexpected emergencies
This contention for dollars results in a troublesome situation in America. MarketWatch reported in a 2016 study: “Americans are some of the worst savers in the developed world. U.S. adults currently save just under 6% of their disposable incomes, according to the most recent data from the Federal Reserve Bank of St. Louis. That number includes savings and retirement accounts.” Six percent is far below the levels needed to meet most family goals and obligations like retirement, college, new cars and the occasional vacation.
What’s more, the article found that: “Almost half of American adults could not cover an emergency expense of $400 without selling something or borrowing money, according to the Federal Reserve. And about 31% of non-retired adults have no retirement savings or pension at all.”
So, if saving is that hard, how do some people do it very well while most people struggle? After researching this issue extensively, and interviewing many spenders and savers in person, I think the answer comes down to this: People who save money well have a FIRST, a FOCUS and a FRUIT. Let me explain:
Good Savers Have A FIRST
Meaning good savers prioritize saving FIRST, then spending what is left after saving. How do you do that?
Most of the people I have talked to accomplish their savings goals by consistently doing three things:
- They develop a set of goals and objectives and then budget, make and use a spending plan, to allow money to be put aside to meet those goals. In other words, they have a budget that ensures money is allocated each month toward their goals.
- Most good savers work hard to define and separate needs from wants. Needs are required for simple living and must be funded in the budget. Wants are something more and good savers usually are willing to fund goals before spending on wants. Good savers are willing to sacrifice wants in order to afford savings for important goals. By that, I mean, savers know what must be paid for, like basic housing, food, clothing and other essential needs. For instance, let’s take housing. A good saver may be willing to afford basic housing (need) but forego something really fancy (want) because they want to save the money to fund an important goal.
- Last, good savers commonly use technology to pay themselves first, automatically and usually quickly so they never miss the money in their paychecks because they never see it. What are examples? Direct deposit into savings or 401K retirement accounts or 529 college savings plans. Many good savers also set up automatic payments to their credit cards so they never carry a balance. Only after all the savings and investments are completed does the remaining money become available for spending. And even then, some good savers automatically pay their important reoccurring bills automatically to make sure they never get behind on items like rent or auto payments.
Good Savers Have A FOCUS
As mentioned earlier, good savers have clear goals which help them to FOCUS where their money should go. If, say, your goal is to retire from full time work by the age of 55, that will require a certain amount of saving and investing each month. Having clear goals helps the good saver stay focused on what’s most important.
There are two important mindsets that help people stick to saving for their goals that are used commonly:
Having “micro goals”. Good savers usually break down their big, seemingly far off goals into smaller goals that feel attainable and are easier to measure progress against. For some people, the goal of retiring in 30 years is not a good motivator to save because it is too far away. But if you broke that goal down into something more immediate and measurable, like “I need to save $275 from every paycheck”, it could keep a person on track to save the money. As long as the end result of the micro goals contributes to your overall goal, this technique can be quite useful.
Focus on progress made, not the distance to the goal. When you’re working toward a big goal, it’s tempting to keep your eyes on the far off prize. After all, this is all about where you want to go, right? You’re moving in a positive direction. Why would you want to look backward? Well, because sometimes looking backwards focuses on your successes to date, which can motivate future successful actions. Case in point: saving for a big vacation. Doesn’t is sound more motivating to say “I have saved $4,000 toward our Bali trip”, than to say, “I need to save for another 6 months to afford our Bali trip”?
Having clear goals to save toward give us our “why saving is the priority” when we are tempted to spend in the moment on less important items.
Good Savers Have A FRUIT
In order for people to save and/or continue to save, they need to see fruit from their saving efforts. Most good savers consistently do a couple things that bear fruit in their saving journey:
Celebrate small wins: They celebrate small wins to build momentum to continue the quest. Celebrating little wins does two things: It recognizes progress and it allows us to include others into the progress of meeting our goals. It also prioritizes the attainment of the goal over immediate gratification through meaningless impulse purchases.
Another fruit of good savers is knowing that giving up something “good” (an immediate purchase) in order to obtain something “great” (achievement of the goal), builds a higher level of satisfaction and ultimately, self-worth. It builds and shows character that leads to financial freedom!
BONUS – One More Thing – Prepare for Life To Happen
No matter how wonderful your plans are, sometimes life just intervenes. Murphy’s Law. Whatever you want to call it. Life happens in the form of emergencies, crises, and unexpected costs.You lose your job. Someone gets sick. Your car needs replaced. Your hot water heater fails and floods your basement. Making it hard to make financial progress. And, with that, your plans start to go awry. The path you were on is suddenly diverted and the big goal seems farther away than ever. It begins to feel impossible.
It doesn’t have to be this way. Good savers can take action early to protect their progress toward big savings goals in the way of an emergency fund. Most savers start very early in making their emergency fund. They scrimp, save, live beneath their means and earn extra money to build a fund, usually 3-6 months of expenses, that is there in case of an emergency and make sure the fund does not get eaten away by other expenses. Once the emergency fund is establish and available, they stop contributing to it and start saving towards their other goals.
Really, the emergency fund is self-insurance. Not only does the emergency fund prevent a run up of wealth-stealing debt, it provides the piece of mind and confidence that goals are attainable and worth saving toward.
Having Trouble Saving?
When it seems like you can’t save money no matter how hard you try, sometimes changing your focus can help. Yes, life happens and sometimes it gets unpredictable and expensive. But by prioritizing savings before spending, having a laser like focus on your goals and celebrating small wins as they big toward the larger goal can be just enough to keep us going and, eventually, realize the goals. That’s why good savers have a first, a focus and a fruit!