In Saving Money… There are Two Types of People
When it comes to saving money, you fall under one of two categories:
- Those who spend first and save what is left over.
- Those who save first and spend what is left over.
The majority of people fall into the first category.
They spend their money first with the intent of saving what is left over at the end of the week or month. How is that working out? You can guess, or possibly have experienced, the outcome of this strategy. The money seems to end before the week or month does. This leaves them with nothing to save. Even worse, they often spend more money than they have and increase their debt load. Increased debt makes it even harder to save in the future as current income must be used to pay for prior expenses.
Many family budgets are set up with this type of plan. Money is allocated to different spending categories and whatever is left over is allocated to savings. Again, the problem with this type of plan is there is usually no money left over at the end of the period. It seems money always finds places to be spent.
Individuals who spend first are typically not concerned with what happens in the investment markets as they don’t have money invested. Their financial future becomes a big problem – What will my retirement look like? And when can it begin, if ever?
People in the second category have a much brighter future in store.
They realize that one of the most important people who deserve to be paid is themselves. Thus, they have a certain amount of money taken out of their pay check or checking account each week or month to go into short and/or long term savings. The saving money comes first and the other expenses follow. Then they can spend the rest of the money knowing they have made plans for the future.
Family budgets in this category have money identified for saving at the top of the budget. They then adjust expenses to fit the amount of money they have left over. Having planned in this way, they have funds to handle emergencies, catastrophes and their future retirement.
These people watch the investment markets and the economy (or more likely have professionals do this for them). They have money in those markets and know that their long term plans will be impacted by what happens to the markets. They monitor the markets to optimize their investments for the long term.
Many people know what they are doing wrong, (i.e. spend first, save later) but don’t make the time to remedy the situation. If you want a review and ready to do something different to get a different result, it’s probably time to talk with a professional.
Written by Paul B. Anderson, CPA
P.S.
If you like saving money, which I know you do, check out our 5 Year End Tax Tips article we just recently published to help you save thousands before the year ends!
Check out the post by clicking here.
