This is a guest post by Robert, who lives in Calgary and
works as a financial advisor retired at 34. He is married, has three kids. Robert and his wife then plan to return to school and become teachers, eventually living and working overseas.
If I were already in the habit of buying a latte every day, I could save $3.00 (or more) each day by skipping it (or making it at home). Multiply that by 20 work days a month, and I could save $60 a month which, according to the Latte Factor, should be redirected to savings. This is a great theory for habits and subscriptions. But habits are hard to break, and some impulse spending is irregular, but still adds up.
Dr. McGonigal explains: “Most people make a fundamental mistake when thinking about their future choices. We wrongly but persistently expect to make different decisions tomorrow than we do today.” This is how we justify impulse spending. For example, I might think to myself that I’ll just buy one bag of chips today, but I won’t next week. I may think that I’ll just skip exercising today, but I’ll have enough energy tomorrow. Or I might just complete one more video game, before giving them up.
But that kind of thinking is unrealistic. It puts faith in my future self to be stronger and make different choices than my current self. The solution is to stop pretending that tomorrow will be different. If I snack all afternoon today, chances are that I will also snack all afternoon tomorrow, the next day and so forth during the coming year. The decision I make today isn’t just a one-time weakness, it’s a habit in the making that will stay with me all year.
My goal, with my finances, has been: consistency. I try to spend a similar amount on food each month. That means my shopping is fairly regular, we eat out infrequently, and I rarely indulge in more than one “treat” per shopping trip. In the past, I made an effort to pay down my mortgage consistently. That’s especially easy with a traditional mortgage. I also focused on saving consistently. Each year, I would work to maximize my RRSP contributions. The RESP is an even better example, because I made an automatic contribution in the same amount and at the same time as the government grant money that arrived in our chequing account each month.
The best way to control spending and saving is to make it a habit and to view each choice as a habit in the making. Instead of impulse purchases, spend a consistent amount each month on food, clothing, entertainment or whatever you choose. Instead of saving only when there’s money left at the end of the month, save a consistent amount each month. And when the temptation arises to spend a little extra, ask yourself if you can spend a little extra each day or week for the rest of the year.
Is your spending and saving regular or sporadic? How do you make sure your budget and savings plan don’t get off track?