I enjoy meeting and talking with other Certified Financial Planner™ practitioners – like Nancy Anderson! Nancy was one of my favorite radio guests when I hosted PlanStronger Radio. Our interviews were always interesting and spirited, so I asked her to join me on two of my PlanStrongerTV™ programs.
During one of our talks, I asked Nancy for her two favorite pieces of financial wisdom. They were: 1. Save 20% of your income; and 2. Adopt a frugal mindset. I know saving 20% may be an ambitious goal for many, but Nancy’s definition of “frugality” made the commitment to this challenge more palatable. She defines frugality as spending money only on the things that are really important to you. A good example would be a couple who came in to meet with me last year. They were “foodies” – they loved to dine out. But, their budget in retirement could not sustain a large house and their love of fine food. Guess what they did? They decided to purchase a smaller house so they could continue to eat out whenever they wanted! (I’m sure you’ve witnessed similar lifestyle choices. Maybe a friend who only shops the bargain racks, but who drives a new Lexus SUV?)
So, first things first: decide what brings you the most happiness in life. Now, how can you adopt frugality so you can “spend on your joy?” Develop good habits and cut waste. Wasted money can be a hundred little things that all add up. Can you cook your own meals instead of purchasing take-out? How much food spoils in your refrigerator? Could you pay your bills online to avoid late fees? What about credit card charges? Don’t pay for services you no longer use. If you can save just $10 a week on two things, that is over $1,000 a year! And I’ve said it before, make sure you contribute enough to reach your employer’s match in your 401k plan at work. (You could also increase your contribution 1% per year. You’ll hardly miss the difference.)
Two more tips before I close. “Retail therapy” can make people temporarily happy, but try to avoid buying items because you feel you “deserve” them. Consider putting money aside in a designated “spending account,” and give yourself permission to access a certain set amount. At the end of the month, re-evaluate your purchases. Ask yourself, “what value did I get from X?” You might be surprised at the number of items you can actually do without!
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