Finding a Save / Spend Balance that Works for You

November 26, 2006

I agree with a recent Blunt Money post, arguing that although many of us tend to see spending and saving money as mutually exclusive, they are not.

Live for Today, Spend for Tomorrow
I like to live by the rule, “Live for today, spend for tomorrow”. Enjoy the here and now but when you’re spending, keep the future in mind. Most of us have limited funds over a two week or one month period of time. If we live within our means, what we spend today will limit what we can do tomorrow.

A Simple Ratio
One way to balance out spending and saving is to come up with a simple save / spend ratio. For example, decide that for every 1 dollar we save, we’ll spend 5. In this case the save to spend ratio would be 20%. Obviously, the higher the ratio the better.

I think this ratio puts our spending in perspective. If we have a ratio of 2%, that means we’re spending $50 dollars for every $1 we save. Do you think looking at it in these terms will change the way you approach spending?

The ratio can also encourage us if we don’t have a lot of money to work with in the first place. If at the end of the year we’re disappointed by the total amount we saved we can check out our save / spend ratio. If we are meeting or exceeding our target ratio then we know we’re making progress. If we want faster progress we can increase our target ratio.

Choosing Your Ratio
Picking an appropriate ratio is important. Just like a diet, the more unrealistic it is the less likely we are to stick with it. On the other hand, the less aggressive it is, the longer it will take to reach our goals. The key is to find the ratio that fits your current situation.

There is no magic number. Rather than arbitrarily choosing one, figure out your current save / spend ratio. Take all the money you saved and invested last month and divide it by the amount you spent. Now that you know where you are, pick a higher save / spend ratio as your goal, one that you can realistically reach within the next 2-3 months.

Hidden Spending
A commonly used example of a way to reduce spending is cutting out our daily vice, whether it is a latte, pack of cigarettes, or eating out for lunch. There is another daily expense that we don’t often consider that costs us more than these typical items.

The income, sales, FICA, and other taxes we pay are a daily expense. Don’t forget to figure this “hidden spending” into the amount of money spent. True it is not optional spending but it is money we spend daily and omitting it in your calculations can greatly skew your ratio.

Unfortunately, we can’t eliminate this expense but we can reduce it with smart tax planning. One simple way to reduce the amount of tax we pay is to spend less money. The less you buy, or the cheaper you buy it for, the less sales tax you pay.

Making it Work
Now that you’ve determined your save / spend ratio, go out and get on with your life. Pick a timeframe to check in on your ratio, maybe every few weeks or every month. See how close you are to your target and make adjustments accordingly. Remember, “live for today, spend for tomorrow”.


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Ben Edwards, the founder of Money Smart Life, saved up enough to buy a Nintendo back when he was 12 years old. When he used the money to buy shares of Wal-Mart stock instead, he knew he wasn't like the other kids... His addiction to personal finance has paid off for his family and now he's helping you to afford the life that you want. Check him out on the web at Google Plus, Twitter and Facebook.

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7 Responses to Finding a Save / Spend Balance that Works for You

  • Jenny

    If we are going to earn money to meet our obligation and save enough to have something for the future, its essential that we plan .You can’t get along in this world without money. We all ought to both save and spend at the same time. To obtain and keep money we have to be savvy. There is responsibility that goes with the handling of money.

  • moneysmartz

    Yes, I agree. The pay yourself first method, direct deposit works well for that.

  • Super Saver

    Great post. I like the decide and don’t think about it approach.

    I would add that whatever the savings amount, one should take that amount out of the paycheck first, deposit it, and not touch it(for any reason:-)


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