The Saver and The Spender Episode 25: Are You Saving Enough? How to Stop Overspending

By | 2018-07-17T09:20:39+00:00 December 21st, 2017|Be Inspired, Learn, Podcast, Strategize|0 Comments

In this week's podcast, we talk about the best way to determine how much you should be saving as well as the best places to keep all this newly-save money. We also answer a listener question about the places and ways we most commonly see people overspend (we're looking at you daily coffee buyers).

How much should you be saving?

A CNN Money article recently said that "roughly half of Americans are saving 5% or less of their incomes, including 18% that are not saving anything, according to a survey from Bankrate. Only about a quarter of people are saving more than 10% of their earnings."

"Currently, one in seven people are saving more than 15%, the report showed."

Saving more is easier said than done, which is why McBride suggests making it automatic by having a portion of each paycheck be directly deposited into a savings account and a retirement plan. "Saving needs to happen before you pick up your paycheck."

Bankrate's Financial Security Index, which surveyed 1,000 adults in the U.S., also showed consumers are feeling better about their debt and financial situation compared to a year ago, which could actually be bad news for savings accounts.

"People get frugal fatigue, as the economy improves I think a lot of people will fall back into familiar habits ... more spending, more debt, less savings."

What do we think of this? First of all, putting 15% of your income into savings is a pretty stupid rule of thumb. It is not applicable across the board because everyone's financial goals are different.  If you have a lot of debt, especially if it is at a high-interest rate, you should probably be putting all your extra money towards that debt, not into savings.

When you are thinking about what you need to put into savings, first you need to think about what your goals are, then think about what your retirement is going to look like.  How do you want to live your life after you retire? When do you want to retire?  What are your current expenses and lifestyle choices and do you expect to continue them?  Some calculations with a trusted financial advisor will help you determine how much you need to save monthly to live your current lifestyle and your goal lifestyle.

For some people saving 15% is really challenging.  We were able to save just about 30% this past year.  It all depends on your current lifestyle, debt amounts, goal lifestyle, expenses and income.

Where are the best places to save your money?

If you are looking for a place to put your savings, it's hard to beat the rates found on online banking these days.  These are the types of places that are typically only online, with no brick and mortar locations. They can offer better interest rates and other features because their overhead is low.  They are convenient and allow you to have multiple savings accounts, name them whatever you want and typically have no minimums or fees. They also can offer the best interest rates for your money.

Check out Magnifymoney or Nerdwallet to compare online banking options. We recommend CapitalOne360 or Ally for their ease of use, no minimums, no fees and great interest rates.

Overspending: Stop the Madness

Listener, James, asked a great question recently about where we see most people overspend and how can you stop the behaviors.

Our list includes:

  • Grooming- ladies we're looking at you.  Haircut and color, blow dry bars (yes it's a thing), botox, eyelash extensions, hair removal, etc.
  • Coffee- $200+ per month?  Seriously?
  • Eating out
  • Travel
  • Home decor- spending a lot of money on decoration and furniture right when you move in, especially if it's temporary, rather than saving and adding pieces over time.
  • Electronic subscriptions/cable/DirectTV: These really add up quickly if you nickel-and-dime yourselves.

So what if grooming or drinking coffee or Sling TV are your jam? By all means, don't feel like you can't enjoy these things. We want you to be able to do what makes you happy. Here are some tips so luxuries and splurges stay luxuries and splurges, not a regular drain on your income:

  • Total up how much you spend over the course of a year, and see if it's really worth it. Does it add value to your life? Is something you really love and care about?
  • Ask yourselves if there is something you can DIY so you spend less and pay to have it done sparingly.  Can you buy a Ninja Coffee Bar and make your own coffee and espresso drinks 6 days out of the week and only buy Starbucks on Fridays?  Can you DIY some of your grooming stuff and budget for the stuff you can't do on your own?
  • Use the free versions of streaming services rather than paying for premium services. Also, use a $30 over the air antenna to get a ton of free HD channels rather than pay for cable.
  • Use cash for eating out.
  • Look into travel hacking with credit rewards if you are a responsible credit card user.  (We are working on a Travel Rewards Hacking workshop, so stay tuned for that.)
  • If you are moving into a new place, especially if it is temporary, decorate slowly over time and always with a budget in mind.  Shop at places like T.J. Maxx, Marshalls, HomeGoods and Goodwill to find great deals.  Your new pad doesn't have to look like Joanna Gaines designed it right when you move in.  Take your time, and find the right stuff at the right price.
  • Make your splurges a special occasion not a regular/daily thing.  i.e. Only get coffee from Starbucks on Fridays.  Or splurge on these things as a reward or when you achieve a goal rather than a regular occurrence.

Mind-blowing way to buy holiday presents for your kids.

If you have seen the Harry Potter movies you probably remember the scene where Harry's cousin Dudley is counting his birthday presents and is mad at his parents for only buying him 101 presents this year because he got 102 last year, and he should have more presents every year.  Sometimes it's hard to know how many presents you should be buying your child or how to to make sure they aren't expecting more and more. You don't want to create a Dudley.  Here is a simple rhyme that we use for present buying for our daughter Carmen:

Something she wants,

Something she needs,

Something to wear,

And something to read.

That's it. Four presents. It covers everything they could want without having the expectations of wanting more and more or being upset they didn't get a ton of presents.

Some alternatives or additions would also be something from Santa and something from sibling(s).

We think present buying this way is more fun because there is a restriction on what you can buy, so it becomes a little game to find just the right present to fit each category.

Make sure you join our Podcast Facebook group and the  Financial Coaches Unite Facebook Group. 

If you have a goal or a New Year's resolution to get your personal finances in order, check out our online workshops coming up on January 6th:"5 Steps to a Better Budget" or "5 Steps to a Better Budget: Solopreneur Edition".

If you want to join the Meal Prep Challenge, which starts January 1st, 2018, check out the info and registration page. 

Finally, if you love personal finance, are proud of your budget and want to help people feel good about their money, check out Financial Coach Academy.  This is our 10-week online financial coach training course where you learn how to build a financial coaching business from the ground up. (Use code: earlybird by December 31, 2017 to get $500 off!)

 

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