Saving for the Long Term

With 2019 in full swing, New Year’s Resolutions germinate in the minds of people everywhere. These resolutions run the gamut — everything from physical health and mindfulness, to personal relationships, professional aspirations and money top the dockets of hope that only a New Year can bring.

According to Statista, people had their priorities straight in 2018 (at least, when they made the commitment). Eating healthier, getting more exercise and saving more money each tallied 37 percent of answers in the multiple-response survey.

Assuming 2019 is anything like 2018, let’s discuss how people can save more money, specifically to meet long-term goals and needs.

Understand Daily Spending

Daily spending must be understood before a plan can be created to aid long-term saving. After all, it’s usually the fleeting day-to-day purchases we can’t remember that alter our financial trajectory the most. It’s not like we’re getting any tangible benefit from them, either.

So, what do you spend your money on in a given day? What’s necessary and what’s a result of indecision or poor planning? Once you understand all the little purchases you could go without, and how much they add up to each month, you can start to see the extra money you could be pocketing.

An important side effect of this exercise is that tracking daily spending also helps us understand the things we do value. With this compass of essential and unnecessary, we can be more mindful in each transaction and avoid wasted purchases.

Trim Your Monthly Expenses

With a firm understanding of the purchases that are bleeding your bottom line dry, you may be more motivated to change certain aspects of your lifestyle. Maybe you’ve found you that the majority of your (high) food bill is dining out, but you’ve realized that you don’t really take joy in buying every meal.

The issue is a lack of preparedness, and meal planning solves it. Digesting your month-to-month spending will illustrate other inefficiencies in your life. Maybe your student loans comprise way too much of your after-tax income or your utility costs seem to leave a bigger dent in your budget than they should. Perhaps you see subscriptions you’re not using or underusing—or, after looking through loan statements, realize just how much in monthly interest you’re paying. Whatever sunk costs you happen upon, use this time to trim the excess fat.

For media, consolidate similar services and leverage any free offerings. For example, Spotify offers an ad-free desktop player, and ad-supported mobile phone access. Netflix or Hulu is a fraction of cable television. And since so many Americans have Prime memberships (or someone in their household that does) don’t sleep on Prime Music and Video. If you have federal student loans, you can apply for an income-driven student loan plan each year, potentially even being forgiven for some of your loans. Though roughly one-quarter of borrowers with federal loans are on income-driven plans, plenty more whom are eligible are not taking advantage.

Define Your Savings Goals and Time Increments

The only things long-term savings goals have in common are that they require time and ongoing effort to achieve. Without a clear goal of what you’re saving toward, it’ll be hard to save consistently and evaluate your progress. Is your goal to buy a house, start a business, help kids pay for college, plan for retirement?

Whatever it may be, envisioning what your savings goals are and then breaking down the steps required to get there continually breed success, according to financial entrepreneur and thought leader Andrew Housser. Be realistic but firm about your what your specific goals and dollar amounts are, as well as how long it’ll take you to get there with consistent saving.

Choose the Budgeting Strategy that Suits Your Lifestyle

Now to the fun (or maddening) part. Armed with a newfound clarity of your financial behavior and freshly engaged in long-term aspirations, it’s time to pick a budgeting strategy that will keep you on track. If you really want to let your money empower you, opt for the zero-sum budget.

In a zero-sum budget, every dollar has a specific function. This is done by using your previous month’s income to pay for your current month of expenses. Doing so forces you to build a savings cushion, and makes it easy to allocate every last dollar across your needs.

If that’s a little too hands-on for you, the 80/20 budget stresses that 20 percent of income be spent on savings, and 80 percent on ‘everything else.’ But this might be going a step backward following the above exercises. In this case, the 50/30/20 budget breaks things down a bit more; recommending that half of after-tax income be spent on needs, 30 percent on wants, and 20 percent on debt repayments and savings. Of course, these percentages are starting points. In the case of debt and savings, they’re minimums. Set your ratios dependent on your current savings, future goals and projected expenses and savings rates.

Saving for the long-term is no easy task, but achieving success is remarkably simple at the core. Understand where your money goes; develop mindfulness and purpose in how your money serves you; envision and commit to future goals; and tie it all together with a plan you can follow. Good luck!