Have you ever started a diet only to give up after a few weeks? You stop eating your favorite foods, start going to the gym ... and then you quit. Many of us give up because we try to live on salads and treadmills for a few weeks rather than address the behaviors and habits that prevent us from reaching our goal.
It's the same with saving money. We vow to stop ordering expensive coffee drinks and start bringing lunch to work. But like our diets, we find it hard to stick to the plan and we're soon back to daily lunches out and $5 lattes.
To save money, you need a sustainable and realistic strategy for change. Expecting yourself to quit lattes cold turkey will probably only make you want lattes more. But understanding why you want or need the latte in the first place can help you become aware of the habits that are costing you.
Easier said than done, right? Not to worry, here are a few steps to help you get started.
Step 1: Track your spending.
I once did an experiment to see where my money was going, hoping it would help me make different choices that could lead to savings. I tracked all of my spending in a spreadsheet under categories such as groceries, personal hygiene, events and travel. Within those categories, I highlighted what I was spending on luxury items - things that I didn't consider essential for my quality of life.
By doing so, I discovered that large portions of my grocery bills included non-food items like alcohol. Before, I never really paid attention to how much the alcohol cost. If it was in a general price range I was comfortable paying, it went into my cart. Once I parsed out the cost of those non-essentials, I could see that a $20 bottle of vodka every couple of weeks wasn't the best use of my money (not to mention it probably wasn't an ideal choice for my health).
Apps and online tools such as Mint, Sweep or My Spending can help you track your spending without the tediousness of an Excel spreadsheet. Once you see where your money is going and what you're spending it on, you're ready to identify the habits driving those purchases.
Step 2: Pay attention when you spend.
In an October 2015 New York Times story, Carl Richards, a Utah-based financial planner said, "What if spending without noticing what we're doing is at the root of our problem with overspending? If that's true, then the simple act of noticing what we're doing is at the root of the solution."
Paying attention to our spending habits helps us understand why we overspend. Try to observe your buying behaviors without guilt, shame or judgment. What are you buying? Is it a planned purchase or an impulse buy? How do you feel when you make the purchase?
Let's go back to our coffee shop latte. The latte itself isn't the problem - it's the habit of going to the expensive coffee place. Is there something particularly special about going to the coffee shop every day? Could you invest in an espresso machine and make your own at home? Would a regular coffee with milk taste just as good? How does it make you feel when you spend money at that coffee shop? Could you create a new routine to break the habit of going there?
If you're not willing to give up your daily latte, you may have to answer an even tougher question: what are you willing to give up instead? You can't keep the same routine and habits and expect to have a different outcome, so something else has to give.
Mindful spending can lead to proactive choices that help you reach your goals, rather than defensive tactics that make you feel like you're depriving yourself. You may learn to hit pause before you buy if you consider these questions:
- Why do I want this?
- Will buying this help me reach my goals?
Noticing where your money goes can be scary or intimidating at first, and that's okay. Remember: change often happens outside of your comfort zone.
Step 3: Take action.
Now that you've figured out your spending habits, you can create strategies that help you spend mindfully. Here are a few ideas to help you reach your savings goals:
Have a plan for your extra cash - What will you do with extra money in your bank account? No matter how small the amount may seem, decide in advance what you'll do with it. Will you put it into savings? Will you pay a little extra toward a debt? Without a plan, you may end up spending your extra cash on something that's not as important, like a new outfit, instead of saving it toward a long-term goal, like the down payment on a house.
Recruit an accountability buddy - Having support from someone else working toward the same goal can make it easier to stay committed to your goal. Maybe you have a friend you typically go shopping with, but both of you want to make some changes to how you spend money. Develop a plan with that friend to only go shopping once every two months, for example. Or find non-shopping activities you can enjoy with that person.
Try a cash envelope system - After budgeting for your monthly bills, take what's left out in cash and put it into designated envelopes for your spending: groceries, entertainment, transportation and other day-to-day expenses. You can only spend what's in the envelope, which will prevent you from overspending. It'll also help you become more aware of what you're really buying as you part with your cold, hard cash.
Redirect the urge to spend - Eyeing a bag of candy in the checkout line? Rather than resist the urge to spend, why not spend it on your savings goals? If you're set up with mobile banking, you could transfer that money into your savings account while you wait in line, even if it's just a dollar or two. You'll feel good about yourself for sticking to your goals and for making a more mindful spending decision.
Remind yourself of your "why" - Why do you want to change how you spend? Are you saving for a house? Do you want to get out of debt? Try wrapping your credit or debit card in a sleeve with inspirational quotes or your goal as a reminder of what you really want.
Manage temptation - Consider avoiding trigger situations and places where you know you're likely to make spending decisions that don't support your goals. If you know that you always overspend at a certain store, you could do your shopping at a smaller store with less variety or a specialty store that only carries the items you need.
You may have more control than you think over where your money goes and how you spend it. When you track and pay attention to your spending, you can develop and maintain a long-term strategy to help you progressively save money. You may also find that awareness and mindfulness can help you reach other goals in your life, such as making healthier food choices or getting a promotion.
Carrie Deakin is a copywriter at Credit Karma. When she's not wordsmithing, you'll find her in the weight room, on the balance beam or at a baseball game.
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