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Spend Like You’re Poor, Save Like You’re Rich

October 14, 2015

When you’re just starting out on a new financial path, it can be a bit daunting to work out an effective budget and start building some solid savings. When in doubt, you should always fall back on this simple rule when managing your finances:

Spend money like there’s not enough; save money like there’s too much.

Practices such as paying yourself first and automatic savings withdrawals make this rule a breeze. Simply put, you should not be using a surplus funds to fuel your spending habits. Got a nice windfall this month? Stop thinking of it as more money to spend. Instead, I want you saying to yourself, “damn, look at all this money we get to save/give/invest”. When you use extra money to just buy more stuff, you’re spending like you’re covered in money, and that’s a pretty quick way to wreck your finances. Remember, windfalls are for buying freedom, not Jet-skis.

To see true breakthroughs with your money, it’s crucial that you begin thinking of your savings as massively important to your financial life. Savings shouldn’t be a nice-to-have or a one-of-these-days goals. Your saving habits need some hardcore attention. If you invested $100/month in index funds for ten years, you’ll be ten years older and around $17,000 richer.

But I’m not talking about $100/month savings. If you live in a middle class, dual-income household, that’s saving like you’re poor. You can do better, and you owe it to yourself to do better. If your eating out budget is higher than the amount you save and/or invest each month, you’re doing it wrong.

If you’re a regular budgeter, it’s important to set realistic numbers for your various expenses. At best, you’ll stick to them, but sometimes, you need to roll with the punches and move money around. When done properly, you should be moving tens of dollars rather than hundreds. The reverse is true for your savings. Adding an extra $20 to your entertainment budget should ache. Adding $200 to your investment funds should feel like victory (and it is). Don’t wuss out on your savings.

 

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