Mindset Shifts for Financial Saving

How to Save

Saving is easy, just don't spend money. I am over simplifying it, but it's pretty much impossible not to work. Saving money is like losing weight on a diet. In both cases you are cutting back in order to reach your goals. Everyone knows in order to lose weight you need to eat less and exercise yet there is a billion dollar industry that relies on helping people achieve weight loss. Financial literacy is similar. Saving money is straightforward yet people pay for count books, guides and coaches. Financial literacy is lacking in society and most of the reason why I started a blog in the first place. There are mindset shifts and tricks that can help one be more mentally  decisive and mindful in their financial decisions.  

Saving Mindset

Saving money is a mindset shift. Spending money is very much related to dopamine hits in our brain but with a shift you can transform your thinking to get a similar hit when not spending. Once again a budget helps a lot with this change in mindset as seeing the fruits of your labor (not spending) can be hugely motivating when it is visually in front of you on an excel sheet. There is a quote I really enjoy that exemplifies the difficulty of changing our mindset on anything.

"Marriage is hard. Divorce is hard. Choose your hard.

Obesity is hard. Being fit is Hard. Choose your hard.

Being in Debt is hard. Being financially disciplined is hard. Choose your hard.

Communication is hard. Not communicating is hard. Choose your hard.

Choose wisely" - Author Unknown

This quote illustrates how you will have to pay for everything eventually. Life is difficult, pick when and what you will sacrifice. This is obviously generalized as some people are in abusive relationships through no fault of their own. Some are overweight or in debt, all through no fault of their own. But I think it's a good quote nonetheless, since the spirit of the message is accurate.

A great way to visualize the mindset shift is the scene from the Office where the whole bullpen tries to see how long they can go without talking. They took a concept and made it a game. Each week see how long you can go without spending on a Want (an unnecessary expense) and see how long you can go. Eventually treat yourself then try again to see if you can beat that record. There is a similar game you can play with your credit card balance to see how low you can keep the balance then try and get it lower the next month.

Daily Spending Allotment

Another way to get into the saving mindset is to give yourself a daily spending amount. That may seem counterintuitive but if you give yourself $4 a day and say you forget or purposely don’t spend one day, you now have an $8 budget the next day then a $12 budget the day after etc. This can be a great way to motivate and reward yourself by not spending to save up for something you really want. Say you don’t spend for a week, you can feel good about spending $10 on lunch since you have saved $4 x 7 days = $28 that week, leaving you with $14 to spare. Saving $14 feels great and a $10 lunch is much better than a $4 muffin or whatever you would buy for $4.

This also can be done with a monthly budget. Say you budgeted a $500 credit card spending limit. If you go through half the month spending only $100, you now have $400 to spend in the last half of a month, meaning you can splurge if you’d like on something bigger or just simply treat yourself to lunch one day and not feel bad about it.

Net Income vs Spendable vs $ Per Hour

Say you make $2,000 a month and you want to buy a $200 winter jacket. Did you just spend 10% of your monthly income? Yes but also no. Everyone has Needs and those take up most of our income each month leaving us with a little bit for Wants and Saving. For example: Say you make $2,000 a month but also spend $1,500 on Needs leaving you $500 for Wants. That $200 jacket actually cost you 40% of your monthly spendable income ($200 / $500 = 40%). Looking at purchases as a percentage of your after Needs monthly budget will help you to realize how long you truly need to work for a particular purchase. For example, say that winter jacket was $500 vs $200, it would have taken you an entire month's wages just to buy that jacket. Plus if you buy anything else in the month like a coffee you would be going over budget. 

You can look at this with small purchases as well. Say you make $15 per hour and you buy a meal at McDonald's for $15. Did that meal cost you an hour of work? Yes, but also no. Once again because you do not keep the full $15 due to all the cost of just simply living (Needs) each month you have to pay off your living expenses before you can get into buying what you would like. For example: continuing with the above, you have $500 left after all your expenses. That meal at McDonalds cost you 3% of your month expendable income ($15 / 500 = 3%) and since you only keep $500 out of $2000 ($500 / $2000 = 25%) earned for Wants, each hour you work you only keep (For Wants) 25% of your $15 or $3.75. Meaning in order to save up $15 you would need to work 4 hours to pay for that meal at McDonald's ($15 / $3.75 = 4 hours). So it actually costs four times as much as you initially thought for that meal and puts into perspective if it is really worth getting that meal if you have to work 4 whole hours to pay for it.       

Money is Liquid

The wonderful thing about money is you can transform it into anything you’d like. Love food, spend all your money on food. Love travel, buy travel. Really want to go to the movies every Friday for $50 a week. Is it worth giving up eating out for lunch at $10 a day? Both cost you $50 a week, which do you value more? You can buy a sweater for $20 or a large pizza, a $300 spin bike or 6 month membership to a gym. What is worth more to you? You are constantly valuing your money and what is worth more to you at any given time. Packing your lunch each day might be annoying but it may be worth a 7 day trip to Mexico each year ($10 a day x 5 days a week x 52 weeks a year = $2600). Your money can turn into whatever you would like, but it is important to plan and evaluate what you truly want before you spend money on things that are of lesser worth to you. You may value travel more than lunch each day, but without thought money may just simply be spent throughout the year leaving you with no funds to book a trip. 

Thinking about money in different ways is critical to overcoming current habits and outlooks. With these tips and tricks you hopefully will be able to better evaluate each purchase in a healthy long term view.

If you found this helpful and would like help budgeting or investing please email me at TaylorMckeeCoaching@gmail.com