A penny saved is a penny earned. And a penny spent is a penny spent.
When you’re making a purchase, do you think about the cost of spending today vs. tomorrow? Probably not. I mean most people aren’t considering compounded interest on a $1 pack of gum before tossing it in their grocery cart. Ain’t nobody got time for that.
Spending Today for Something Today
But it’s worth taking a minute, especially if you’re considering making a big, unplanned purchase to think about how spending today affects your long-term money goals.
A lot of people spend money on impulse, which of course we do not recommend. Impulse means your not paying attention to your goals. You’re being controlled by your emotions. You may even be unconsciously pressured by a spending trigger. The more you force yourself to stop and think about spur-of-the-moment purchases – especially big ones – the more it will become commonplace to take a beat before handing over your debit or credit card. And that beat may be enough to help you rethink the purchase.
In the case of large purchases, take a few days to think about what you want to purchase and why you want to purchase it now. Let’s say you’re washer and dryer is a bit old and there is a really good Labor Day weekend sale going on at your local Home Depot. Sure, a new washer and dryer would be nice, but is it necessary right now? Can you live without it until you can save enough for it? Just because the sale is good that doesn’t mean the timing is right for you.
Or maybe it isn’t even an item available at a discounted price. It’s something that you’ve wanted for a while like a new pair of running shoes. As you’re picking out shoes for your kids because they’ve outgrown theirs, you see an exact replica in your size of the running shoes you currently have that need to be replaced. It’s tempting because you know and already love these shoes. But do you have to buy them now? Could you purchase the same pair for less money somewhere else? Can you wait for them to go on sale because you know the holidays are coming up? The waiting is key. Why?
Because you might find you don’t need (or want) whatever you thought you absolutely needed at that moment.
The cost of spending your money when you fall victim to the impulse can be quite high. For these purchases, you’re probably going to spend money that isn’t accounted for in your budget. Even worse, you might use a credit card which will cost you more money in interest than the money you saved buying it on sale. Reactive spending tied to your emotions leads to buyer’s remorse, guilt, and most importantly, it can to delay achieving your future goals.
That’s the cost of spending today vs. saving for tomorrow.
Saving Today for Something Tomorrow
Most people have heard about The Latte Factor. It takes the cost of a $4-per-day coffee drink and multiplies it over years to illustrate how much you could be saving if you quit buying a daily latte (or whatever is your caffeinated beverage of choice).
Let me say that if you love your latte, by all means, leave it in your budget. It’s my theory that your budget is yours and if you want to spend money on a latte, then so be it. It just means we may have to take from another area of spending for your savings.
You need to have savings. What you’re saving for is up to you. It can be something big or something small. It could be that $1,000 washing and dryer set or a $60 pair of running shoes. But the key is buying them with savings.
Think about the emotions around making a purchase when you’re paying for an item because you saved for it over time versus putting it on a credit card and figuring out how to pay it off later. How much better do you feel when that purchase is funded from a savings account? It’s the difference between buying an item with a feeling of confidence, and clarity versus the short-term high from buying something on a whim.
A client of mine started a savings account with $12 per month earmarked for home decor updates. A year later she was ecstatic because when a lamp she’d been eying went on sale, she snatched it up. No buyer’s remorse whatsoever. Today, her savings goals are a bit bigger. She’s saving for her next car. Won’t that be a fun purchase?
That’s the power of saving today vs. the cost of spending today.
A little discipline today means you can save and pay cash for the things you truly enjoy or want whether it’s a monthly massage, a new couch, or a new car. But if you’re constantly spending in-the-moment, that monthly massage may only be a pipe dream.
The impact of spending today without having money in savings could cause you unneeded financial stress for months or years to come. That’s a choice you’re making and not one I recommend. Budgeting means you have the cash available to make your purchases, no matter how big or small. But it also means you may have to wait until you have enough money saved. But when you do and you make that purchase, man is it liberating.
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