Saving Money Today: Just a Dream?
How many times have you and your friends mentioned that some day in the near future you’ll get your finances in order, you just need to get a better job? We all have some hang ups with money. Some worse than others. However do you ever wonder why so many people to reach their dreams? Many times it has to do with barriers.
“I’ll Lose Money”
Most people have loss aversion, meaning that people would rather avoid losses than risk a chance to make gains, even big ones. I know people who don’t invest in the market because they’re afraid of picking the wrong stocks and losing all their money.
Solution: Start conservative and build from there.
If you’re too worried about jumping into the market now, then start with a target fund based on your estimated retirement date. Don’t put a lot of money in. Check to see if your company offers a 401(k) match. Put enough to get the match; you’ll be getting free money from the company. Use that money to experiment with while you put your money into the target fund. As you get more comfortable look at other investing options.
“I Have to Have Perfect System”
A big fear for many is not having the winning formula right away. I completely understand that. Fear of failure can be huge. I will tell you right now that no one has the perfect system. Things change and so we all have to adjust our plans from time to time.
Solution: Start with one thing.
Instead of trying to pay down debt, get an emergency fund up, and invest in your 401(k), pick one goal to hone in on. If you have several credit cards that have debt, choose one to start off. Once you have success in one ares, then move on to another goal.
“I Don’t Have Any Money Left to Save”
I’ll admit that I had this hang up a few years ago when I was in debt. After paying my bills I always found little or no money left in my bank accounts.
Solution: Deduct savings first. Fight lifestyle inflation.
This seems a bit irresponsible considering necessary bills are vital. Hear me out though. If you can even deduct a small amount (a mere 5% for example) from your take home pay before the bills are done, not only will you be saving money, but you’d likely still have enough money to pay your bills.
Another culprit is lifestyle inflation. In fact I bet that many readers have this problem than the others.
What is Lifestyle Inflation?
Lifestyle inflation can happen as your expenses increase along with your income. Maybe as a college student you were extremely frugal and only went to the movie theater during matinee hours. Now with a better job, you and your friends head out every time there’s an interesting movie released. You’re not living large, but here and there, your regular expenses have gone up.
Lifestyle inflation can become a problem when it hinders you. If your income decreased, could you weather the recurring monthly expenses? Have you been able to save money for emergencies, vacations, or a down payment on a car? Why not? How can you adjust your monthly spending plan?
Being Smart About Lifestyle inflation
I’m not saying you shouldn’t enjoy some of your hard earned money now. I think it’s unrealistic to just tell people to spend less. I want to share some tips on how you can go ahead and get your spending under control. You can take what you need from the list and use it for your own circumstances.
- Define your priorities. What bills have to get paid (rent, food, transportation)?
- Adjust expenses by a little bit. What bills can be adjusted (downgrade the cable bill a notch)?
- Find at least one big win. Could you dramatically save a big chunk of money by shopping around (like car insurance)? Can you get rebates on purchases you made recently, like a new cell phone?
Do you think you could decrease your spending if you were in a tough spot? What do you recommend people do first?
Psychology of Money
Looking at passive and active barriers and how to tackle them can help you increase your net worth. Curious to see what affects your money making (or losing) decisions? Check other posts in the Money & Psychology series:
- Choosing Friends to Build Your Net Worth
- Decisions, Decisions – Making a Big Purchase
- Is Saving Really About Motivation?
- Ways We Spend Money Without Evening Knowing It (and How to Fix It)
What have been some hurdles for you when it comes to saving money? What helped you to succeed where you had failed before? How long did it take for you to reach your savings goal?
Photo Credit: jollyUK