There is a famous quote attributed to Peter Williams that states, “You can have anything you want. You just can’t have everything you want.”
There is a lot of wisdom in that statement. It exemplifies the importance of creating personal priorities so you can achieve your goals. I have been reasonably successful when it comes to managing my personal and business finances. And much of that is due to setting priorities for saving and spending, and sticking to those priorities. Here is my saving story.
I Prioritize My Saving and Spending
By this, I mean I pay myself first. I started this with an Emergency Fund, which I believe to be essential for any healthy financial plan. My personal Emergency Fund has varied in size over the years. At first it was a thousand dollars, which was enough to handle most medium size emergencies, such as car repairs, an emergency airline ticket, etc. Gradually, I grew my Emergency Fund to reflect my ongoing financial obligations and my growing family. That $1,000 Emergency Fund turned into a full month of expenses, then 3 months of expenses. Now that I am self-employed, I try to keep about a year’s worth of living expenses on hand. It took a long time to get there, but I feel it’s an important safety net for my family.
Retirement savings is another area where I prioritize savings. I started my first IRA at age 19. I have maxed it out almost every year since then, even when I wasn’t making much money. I also contributed to employer sponsored retirement accounts, including the TSP when I was in the military, and a 401k when I transitioned into the civilian world. I haven’t always been able to max out my 401k, but I have worked hard to at least fund it to the company match.
I Spend Where it Matters Most
Saving money is great, but I’m not a miser. I save so I can spend where it matters. There are a few things I am willing to splurge on. This includes business expenses where I expect a positive Return on Investment, and experiences for myself, or with my family. This can be travel, adventure, time with family, dining out, etc. My wife prioritizes her spending on healthy foods and health care products. This is important to her, so it’s important for our family. Our children’s education is another area where we are willing to spend money. These things are important to us, so we are willing to sacrifice in other areas.
I Cut Costs on Things That Don’t Matter As Much (to Me)
Everyone has different priorities. This is neither good, nor bad, so long as you can afford the things you are prioritizing. The way I do it is by cutting back on the areas that aren’t as important to me. For example, I drive a 9 year old car. I bought it brand new, and have taken very good care of it in the time I have owned it. The car isn’t fancy; it’s a Mazda 3. But it’s functional, safe, and efficient enough. While it would be fun to have a new car, it isn’t that important to me. At least not more important that having experiences with my family. Or saving for retirement. I can come up with dozens of other things that aren’t more important to me than the items I mentioned above.
You can have your priorities. Even if they are extravagant. Just make sure you are able to afford them, even if it means cutting back in areas that aren’t as important to you.
I Track My Savings – and My Investments
The final thing I do is track my progress. It’s important to keep track of what you have. This gives you an idea of your current state of affairs helps you track your progress, and often shows you where you can make improvements. I track my savings and investments two ways.
The first, is with an Excel spreadsheet. It’s simple, and the manual updating each month ensures that I log in to each account and look over everything. The spreadsheet is handy for tracking my contributions (IRA, 401k, and HSA), and when certain payments are due, such as my quarterly estimated taxes. I also like the manual method because it gives me the opportunity to see how each account has tracked over the previous months and years. It’s the same information found in many software programs, but I have the flexibility of how I see it.
But spreadsheets aren’t always as powerful as software. Which is why I also use different tools to track my finances – including my banking (saving and spending) and my investments. I am currently using two different software programs, both of which have some excellent features. And both of which are free! I highly recommend them if you want to track your saving and investments:
Personal Capital and Future advisor are both free tools that give you insight into your total asset allocation, and both make recommendations on how you can better allocate those funds. Both have some similarities and slight differences. But I use the both since they are both free. I highly recommend them to get a quick financial checkup and to help you track your finances going forward.