This is a guest post by Robert, who lives in Calgary and worked as a financial adviser before retiring at age 35. He is married, has three kids and has returned to school with the goal of eventually living and working overseas.
Summer vacation is great. The weather has been really good and it was fun to get away with my family for a few days. However, it means spending beyond what we normally would. Staying in hotels, eating in restaurants and playing on waterslides, we ended up spending far more money than in prior months. It was definitely worth it, but it reminds me that it’s easy for spending to get away from us.
Summer vacation isn’t the only time that spending can run away with us. Christmas, birthdays, holidays, celebrations, or even just “retail therapy”. In fact, whenever there’s money left at the end of the month, it’s tempting to splurge on some of the things we’ve been wanting to buy. One of the things that surprised me the most, as a financial advisor, was people’s answer to the question: “How much do you spend each month?” Many people would look surprised by the question, totally unsure of the answer and end up blurting: “All of it.”
When you earn $2000 per month, it’s easy to spend all of it. When you earn $5000 a month, it’s easy to spend all of it. And I’ve seen people who earn $10,000 who have no problem spending all of it. I suspect that most of us have a bigger imagination than our capacity to earn income; there’s no shortage of creative ways to spend it all. One of the decisions I made early on was to try and keep my spending steady, even while my income rose. In reality, my spending increased a bit, but less than my income. That’s what allowed me to save a large proportion of my income. If I had, like some people, spent it all and waited until I was 45 to start saving, it would have been much more difficult because of the spending habits that are in place by then. Also, income tends to increase more slowly, sometimes only keeping up with inflation. This may be a reason that there’s so much focus in personal finance literature in reducing and restraining spending.
If you start early, it’s far easier to save a large portion of each increase. If your income rises by $500, start an automatic savings program of $350 and spend the other $150. That way, it still feels like an increase, and you’ll also make progress toward your goals. After all, he who dies with the most toys, still dies.
How do you find money to save? Do you save regularly, or sporadically as money is available?