Spender Vs Saver — Which One Are You?
Not all spending is bad and not all saving is really saving. I created the Spender vs Saver Continuum as a way to visualize the differences and create a dialog about what it means to be a spender vs a saver.
On the far left side of the continuum are people who spend every dime, never save and get stuck in Dodge. Even an inheritance or lottery windfall typically doesn’t help because they don’t see the value in saving or never developed the discipline to save.
On the other side are the money masters. These folks often spend very little in relationship to their net worth. Everyone else is sitting somewhere in between saving some and spending some. Figuring out where you sit on the continuum is an important step in building wealth even if you don’t care to be an extreme saver. That’s okay, it’s not for everyone.
Spending and saving are such general terms. Without breaking them down a bit it’s hard to see where you might have an opportunity to tweak what you are currently doing to improve your life. I say “tweak” because I have found that real success lies in small changes made over time. Trying to make major changes overnight often results in a cycle of failure (you know, kind of like how crash diets work).
Let’s take a look at one way to evaluate your spending.
Spending: Wants vs Needs Test
It’s easy to confuse a want as a need. Once you’re clear about what you’re doing, you can make better choices. Sometimes satisfying a want is okay; the key is to be honest about what you’re doing.
Here are seven questions to ask yourself before spending to help weed out the wants from the needs. I’m sure there are many more questions, feel free to add yours in the comments section.
By taking the time to get honest about making a purchase, you could find that you cut your spending very easily.
Savings: Future Expenses vs Investing
Another problem is that many of us think the money we put in savings is being “saved” for future spending. From my point of view there are two savings buckets: Future Expenses and Investing. Each of these buckets have a completely different purpose.
Future Expenses Bucket
Money that goes in the Future Expenses bucket will be spent. I’ve written an entire post dedicated to this subject. For now just know that this is where you save for bills or items you know will be coming up in the future. Here is a partial list of the categories in my Future Expenses bucket:
- Auto: Repair
- Auto: Replacement
- Auto: Insurance
- Home: Maintenance
- Home: Insurance
- Home: Improvements
- Home: Property Taxes
- Personal: Vacation
- Personal: Emergency Fund
Money that goes in the Investing bucket will not be spent. I know, this is a hard one to swallow but once you realize that this is the best path to financial freedom, it makes it a lot easier to put money in this bucket and protect it from poachers (by the way, poachers are usually found by looking in the mirror). Here are four truths about the investing bucket:
- Each dollar is your employee and, if trained right, can work to replace your income. (Read that again…it is a powerful statement.)
- You don’t have to know anything about “investing” to start.
- You will sleep better knowing you are taking responsibility for your future.
- Your self-confidence will grow in many areas of your life along with your account balance.
A good rule of thumb is to automatically have 10% of your gross earnings put in your investment bucket. If you can’t swing 10% of your gross income now, start with something you can do and then work up from there. The point is to start.
Future posts will touch on this subject more. In the meantime, here are two books I read early on that made a huge impact on my life. You might find some useful ideas here, too. (Note: These are affiliate links.)
- The Richest Man in Babylon
by George S. Clason
- Your Money or Your Life: Transforming Your Relationship with Money and Achieving Financial Independence
by Vicki Robin
What about you?
If I were to take a pen and mark where I am today on the Spender vs Saver Continuum, I’d put the mark somewhere on the right side. I came from the far left. Where would you put your mark? Are you happy with where you are? If not, what is your first step in making a change? Please share your story and ideas in the comments section below.
Part I: Does Your Spending Support Your Values? (focuses on defining your values)
Part II: Does Your Spending Support Your Values? (focuses on tracking expenses to values)
Reduce Financial Emergencies With One Simple Strategy (this post covers Future Capital Expenses)