Controlling Spending and Saving

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.

Why do most of us spend too much and save too little? It’s the sum of all the little choices we make each day. It’s so easy to rationalize spending just a couple dollars here and there. A muffin, a latte, a magazine, or any other impulse purchase, doesn’t seem like much money. In fact, author David Bach called it the Latte Factor. Dr. Kelly McGonigal has pointed out that the same idea can be extended farther.

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?

5 thoughts on “Controlling Spending and Saving”

  1. My hunch is that much of our consumerism and impulse spending is due to the hope of diminishing or responding to the (real or perceived) stressors in our lives, and then our spending becomes more out of habit than need – especially when it comes to food and/or clothing.

  2. Steve: I’m sure you’re right.

    Teresa: That’s exactly how it should work. I guess I was preaching to the choir, so to speak. I wish I had the same discipline in all areas of my life that you have with your finances.

  3. Great post, love the simplicity of the blog and yet I’m sure these principles escape 95% of the family and friends I know.

    My approach on saving/investing requires little thought, lacks creativity and I’ve just recruited my girlfriend to adopt the same policy. Automatic withdrawals around the time of our monthly pay deposits that match the predetermined % for saving/investing for the year, that go directly into high-interest savings or self directed investment accounts. As long as we only spend what is left in our bank accounts, we are good.

    Regarding spending, I also like the rule that I stole in the late 90’s from a personal finance book I can’t remember the name of, “spend as though you were making the wage you earned 5 years ago”. Simple rule but when I think about it, life 5 years ago in 2007 was pretty good and I didn’t want for much so why do I need to spend more today?

    Great post and I’ve saved this as my home page now.


  4. Darren: I really like the way you do it. Decide in advance how much to save (or invest), save it automatically each month, then spend the rest. I also agree with controlling “budget creep.” It’s always easy to spend more, especially as incomes increase, but there’s not always a good reason to do it. Thanks for sharing.

Comments are closed.