Following is the advice an “expert” gave to a couple trying to save for multiple financial goals … and I do mean multiple.
Priority #1 is to track where every dollar is going. Without that crucial data point, we can’t really move forward because we don’t know how much money is leftover every month. Once you know what they’re spending every month, you can start setting savings goals.
Hold it, without tracking every dollar spent, we can’t know how much is leftover? Let’s think about this. Each month your pay is deposited in your bank and during the month you spend from the bank account and at the end of the month you look at the account and you see what is left. Even though you may not recall what you spent the money on, you sure as heck know what’s left.
The person asking for help wrote that “Once we paid off all our credit card debt, we went to a system of only budgeting for bills and putting everything else on the credit card and then paying it off at the end of each month. It is very easy to buy a whole bunch of stuff using that method and have way less to transfer into savings at the end of the month.”
It sure is, that’s why you do the opposite. You save first which then automatically limits your sending. How hard is that for two college graduates to figure out?
This advice column has it backwards. First you set your savings goals, set them until it starts to hurt. That means at least 15% to 20% of gross income. That may mean living on the income of one partner. It may mean giving up a vacation or any number of things if you truly have important money related goals.
In this example their goals included, having children, funding the children’s educations, being debt free, travel and retiring at age 50.
Those are hefty goals which are not going to be met without mega savings, and setting saving priorities. In any case, meeting all those goals before retiring at age 50 isn’t’ going to happen if the priority is not saving.
One month of realistic saving will quickly show these folks their spending has to be trimmed, really trimmed and some of their competing money goals must be realigned. Then is the time to start looking at HOW the money is being spent.