Finding a balance between saving and spending

saving and spendingNot too long ago we talked about determining needs from wants when it comes to your spending habits. As a financial planner and former bad-girl-gone-good when it comes to money I know first hand how easy it is to let your spending get out of control. I also know that it’s hard to focus on saving more and spending less at the same time. So often people think that if you spend you can’t save and if you save you can’t spend and that’s not true. The truth is you can do both.

Set more than one goal at a time

There is absolutely no need to have tunnel vision when it comes to your money. I think it’s healthy to have more than one goal at a time and it’s nice to have something to look forward to. My current financial goals include saving for moving expenses when we buy a house next October, saving for my next vacation in June and paying off my credit card in full by December 1st.

Prioritize your goals

I am currently contributing a portion of my after-tax income towards all three of my goals, but the amount of money that is put aside is different for each goal based on it’s priority ranking. As one goal is achieved I can allocate the money towards the next most important goal.

The credit card payment is currently my priority because it’s the goal with the closest due date. The balance is currently $3,000 which is less than it will cost for my vacation to Orlando in June, but since it has the shortest time period it’s currently my number one priority. The vacation fund is where the next biggest portion of my disposable income goes. After that all my savings from June until October will be allocated towards the moving expenses.

Open different accounts

I personally like to keep all the money for each goal in a separate account. Maybe it’s the financial planner in me, but I just can’t focus or keep track of the progress towards each goal if the money is mixed all together. I didn’t open an account for the credit card payments because that’s easy enough to track when I transfer money from my checking account to the credit card. However, I do have two separate accounts for the vacation fund and the buying-a-house account.

When those goals are reached, I will rename the accounts and focus my savings towards something else. However, until that time I think twice before spending any money that’s not on a necessity because every time I spend money it’s taking money away from reaching my goal.

Choose to spend wisely

Spending money on the things that count is crucial when learning to balance between saving and spending. This comes from prioritizing your goals and knowing where your money goes. Popular personal finance website Frugal Rules says setting and prioritizing goals helped them become debt free faster than planned.

“For instance, being on a pretty strict budget right now as we whittle away at our debt, going out to eat is something we usually only do three or four times a year. If we’re lucky. However, this month we made an exception, and accepted an invitation to join a beloved family member in celebrating her birthday at a sit-down restaurant. We all paid our own way, and all said and done, our final bill for our family of six was, with tip, $78.  That’s a lot of money for us, and it’s the reason we rarely go out to eat. As we planned in advance for this expenditure, all sorts of things went through my mind.  I checked the online menu for prices, added up rough estimates for what each meal would likely cost, and looked for online coupons.”

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