Savers vs. Spenders

Ladies and Gentleman, in this corner wearing the blue trunks and weighing in at 500 pounds is Saver! And in this corner, wearing the red trunks, also weighing 500 pounds, is Spender! Yes, the 500-pound gorilla whose there beside you in the living room or on the way home from work is Saver or Spender—which one is accompanying you? Or does it really have to be one or the other? Is it possible that the two of them can peacefully, productively coexist?

As a financial advisor, my job is to help you get from point A to point B. Point A is now, and Point B could be college for your child, retirement, or buying a vacation home. In order to get to point B, you’ll need to save money and invest it at a rate that will outpace inflation. In order to have that money to invest, you need to save. In order to save, usually you have to not spend the money.

There is the dilemma: save or spend. Saving is boring; spending is fun. Maybe your grandmother was a saver—she never went out to eat, she clipped coupons, and she never paid retail for shoes. She had a lot of money in her savings account, but she never put it toward her own enjoyment. Did it just bring her comfort knowing it was there?

If you are in your forties or fifties, you probably like to spend. We’re different from the generations that came before. You want to go on vacation or out to dinner, so you do, or you pay full price at Bloomingdales. If you don’t have enough to pay for it all this month, you run a balance on your credit card or dip into the home equity line. This makes it very difficult to save—and, damn, you’re behind the eight ball again.

I confess, the Cohen family budget could use some attention. Budgeting and tracking your spending really helps you control the frivolous or unnecessary purchases it’s so easy to make. Many banks and credit card companies have tools on their websites to help you track your spending habits. And there are dozens of money management apps available.  It’s really worth keeping track of how many times a month you’re going out to dinner. And do you really use the gym? Why are you going to the grocery store so much? Are you buying too much food so that some of it gets thrown out? Can you consolidate your cable and phone providers and negotiate a better rate? Analyzing your spending habits will reveal all sorts of ways to save money.

It’s good to ask yourself every time you make a purchase: is this a want or a need? It’s a big and tough question, but if you pause and ask yourself this question each time, it will in time become a habit—a good habit—and will undoubtedly keep you from buying a lot of unnecessary stuff. And voilà—you have savings! You now have money to put toward your goals, whether they be lofty ones like college for your children or traveling the world or more practical ones such as having a long, comfortable retirement.

You’re probably familiar with the story about when Albert Einstein was asked what is the greatest invention in human history. He replied, “Compounded interest.” I don’t know if Einstein truly said that, but it is indeed a powerful force that we don’t often realize. Vanguard has a very good illustration of the effect of compounding interest.

I hate the common financial planning advice that tells you if you don’t buy that Frappuccino each day or the six-pack of beer on the weekend, in twenty years you will have saved $100,000. So what? If I don’t eat, I’ll lose weight. You don’t have to be miserable to curb your spending habits. You just have to be smart and disciplined.

What this all boils down to is that saving and spending can exist together, but they both need care and attention.

Change comes with baby steps. If you would like to explore this topic more, there is a great website, www.mrmoneymustache.com, that discusses ways to save money so you can retire sooner. Some suggestions might be too extreme, but they’ll probably stir up your own good ideas.