by Dana George | Updated July 17, 2021 - First published on Dec. 30, 2019
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You can't escape the future, but you can make it easier by switching your spending habits to saving habits.
We are a nation of spendthrifts, folks who want what they want -- right now. Don't have cash on hand? That's okay, you can charge it.
If one of your New Year's resolutions is to waste less money and sock more away in your savings account, you've come to the right place. Here are three ways you can change your spendthrift habits for good.
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I have a friend who buys new bedding when she's feeling blue, and another who spends a small fortune eating out in order to combat anxiety. We all have spending triggers. For me, the desire to spend is triggered by feeling relaxed. I realize it sounds odd, but stick with me here (primarily because it took me years to figure out).
When my husband and I finally started making money, I remember buying every ridiculous thing I could get my hands on. We'd been in college for so long, watching pennies for years. Having a healthier-than-normal income helped me relax. Feeling good about our situation made me want to celebrate, and "celebrating" involved buying stuff.
To make up for years of financial deprivation, I ended up with a house full of tchotchkes, knickknacks, doodads, and whatnots. It was all rather wonderful until I looked around one day, saw rooms filled with tacky junk, and realized how foolish I'd been. There had to be a better way to handle money.
Just today, a friend accused me of being "financially obsessive." I'm not obsessive, but I have discovered how good saving feels.
Becoming a saver involves identifying your trigger(s). Do you make unnecessary purchases when you're bored, sad, frustrated, or lonely? What is it you're trying to make better? Like me, it may take you a while to figure it all out. Until then, ask yourself these three questions before you make a purchase:
Social media makes it easy to focus on spending. There are so many people out there to impress and they are all posting images of their spending -- whether its a new house or car, vacations, or food from fabulous restaurants.
By contrast, saving is a private thing, which just feels weird to anyone accustomed to living a Facebook or Instagram life. Showing your old high school friends your fat portfolio just doesn't have the same impact (although it should).
As humans, we crave companionship, to be part of a tribe. Still, when it's time to make a choice between spending and saving, here are two more questions to ask yourself:
The great thing about letting go of what others think is that it frees you to do what's right for you, even if it doesn't make you popular.
All that fabulousness must be financed, and if we don't have the cash (and many of us don't), we turn to credit. The problem with relying on credit is that it ends up costing so much.
Let's say I'm still into tchotchkes, knickknacks, doodads, and whatnots. I go hog wild and rack up $1,000 in credit card debt to fill my home with deliciously ostentatious items.
Let's also say that the interest rate on that credit card is 17% and I make the minimum payment of $30 each month. At that rate, it will take me 46 months to pay the credit card off and I will end up paying back $1,362 -- $362 of which is purely interest.
But what if I'd opened an IRA with that $1,000 instead? And what if that investment paid 7%? By investing $30 each month, I would have $1,626 in my portfolio at the end of 46 months.
Credit is only easy in the short term. Before making a purchase that will put you in debt, ask yourself:
If saving is new to you, it's okay to start small. Aim for whatever percentage of your income you can put away this year and try to add 1% each year after that. Before you know it, you will catch a rarely discussed condition (that I just made up). It's called savings fever and it feels so good that you'll want to continue saving more.
Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. The Ascent's picks of the best online savings accounts can earn you more than 8x the national average savings account rate.
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