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Several years ago, I had the pleasure of presenting a budgeting workshop for a great group of people at my old company. There were lots of good questions. However, one, in particular, kept me thinking after I left. In hindsight, I wished I’d answered it better.
So here goes. The question was: “Spending is really fun. How do you make budgeting fun?”
Of course, the question isn’t really about the act of making a budget, but more about the act of controlling spending, with an eye toward increasing saving. In other words, how do you make saving fun?
The fact that spending is fun is among the reasons, so many American’s save so little.
The Federal Reserve reports the average American is currently saving around 7 percent of their after tax income.
If that were your savings rate, it would take you more than 14 years to save a single year’s worth of your income, making it a challenge to retire with your current lifestyle.
So, how do you make saving fun?
My answer at the time was to use myself as an example. I declared how I loved seeing my savings going up in value, which made me sound like the nerdy bean counter I am.
What I left out was why that made me happy.
It made me happy because, with every rise in the value of our savings, the closer my husband, Jeff, and I came to realize our goal of leaving work in our 50’s. I knew we were getting closer because we had very specific financial goals.
As it turns out, achieving goals is a direct path to happiness.
Psychological research shows “the successful pursuit of meaningful goals plays an important role in the development and maintenance of our psychological well-being.”
In addition, the achievement of goals is a self-reinforcing motivator. The more progress we make on our goals, the more we’re motivated to take more actions that help move us further toward what we desire.
Think about a time when you completed a project.
You were jazzed, weren’t you?
It was an accomplishment, and you had worked hard for it. Maybe you even celebrated.
Projects are relatively short-term in nature and very tangible. The problem with saving for the distant future, a time when you’ll no longer be working for pay, is that it’s, well, distant and not very tangible.
It’s hard to quantify how much you need to save, making the visualization of a savings goal a little blurry.
There’s a lot to consider, like where and how you want to live, whether you’ll be healthy, and more.
So, many close their eyes, hold their breath and hope for the best instead of making goals and plans. Procrastination like this, by the way, has been shown to undermine happiness.
The secret to making saving as much or more fun than spending is to cut through all of these complicating details and set tangible short and long term savings goals.
Your longer term goal is how much you need to have saved before you can reasonably stop working. Your short term goal is how much you need to save each year to make your long term retirement number.
Create your goals
Here are three steps to help you get started.
- Ballpark your long term goal:
If you don’t have specific plans for your post work lifestyle, a safe assumption is that you wouldn’t want to be forced to live on less than you do now.
As you figure out what you want and determine a retirement number, keep in mind you can always adjust your goals.
To keep your same lifestyle when you stop working, you’ll need to accumulate roughly 25 times what you’re currently spending if you intend to stop working at a traditional retirement age.
Looking at it from a different direction, you’ll be able to spend about $333 per month for every $100,000 you have saved.
2. Break the long term goal into shorter term steps:
Of course, that’s a significant number and so seemingly out of reach that it may be demotivating. So like any big goal, it helps to break it down into smaller goals.
Set a goal for how much you want to put into savings each year.
It may be hard to change your spending by very much in the short term. Things like debt payments or daycare costs may take more work to change. But you can start small and save more later as you make more changes to decrease expenses and grow your income.
3. Build milestones for measuring your progress:
Set another goal for your total savings balance for the end of the year. Your total savings balance is dependent partially on what you contribute and partially on how much your savings earn.
You don’t have to have a crystal ball about the stock market. Choose a reasonable growth rate, like 5.0 percent, which would line up with investments where at least half is invested in the stock market.
Of course, your assets won’t earn that every year. Some years will be better and some worse, but it gives you something specific to measure your progress against.
My husband and I created a spreadsheet that showed a specific target balance we hoped to achieve through savings and reasonable investment returns each year. We made an annual date to check our progress.
Did we contribute what we planned to contribute during the year? Because we could control the savings part, the answer was yes.
Was our balance what we expected?
We couldn’t control the investment returns, so this answer wasn’t always yes, but it usually was. For the few years when the answer was no, we chose to save more in the following year to close the gap between our actual balance and target balance.
We always celebrated our success, even if the victory was simply to have saved what we had promised ourselves we would.
With these three steps, you have a ballpark understanding of the end game, a short term actionable goal for how much you will save this year, and annual benchmarks for which there are known corrective actions.
Your goals are specific, short term, and tangible.
This is a recipe for getting the same thrill from saving as you do when you complete a project. That makes achieving your savings goals at least as much fun as spending, and the glow will last much longer.
Article contributed by Julie Grandstaff, the author of “Save Yourself: Your Guide to Saving for Retirement and Building Financial Security.” Julie’s a 25-year veteran of the financial services industry, where she managed billions of dollars for both individuals and institutions. She retired early at age 51. See our review of Julie’s book here.