By Cameron Huddleston
GOBankingRates.com
WWR Article Summary (tl;dr) Dr. Brad Klontz, a financial psychologist and associate professor at Creighton University says “If your goal is to deprive yourself of any pleasure, it’s going to backfire.”
GOBankingRates.com
You’ve likely heard countless times that you need to stop throwing away money on things like a daily latte.
In fact, best-selling personal finance author David Bach popularized the concept “The Latte Factor” and created a calculator to help people see how much little expenses add up and how that money could be saved.
But that doesn’t mean you have to give up all of life’s little luxuries if you want to get ahead financially. Actually, trying to eliminate all of the small things you enjoy might do more harm than good to your finances.
“If your goal is to deprive yourself of any pleasure, it’s going to backfire,” said Dr. Brad Klontz, a financial psychologist and associate professor at Creighton University.
So if you’re like many Americans who are vowing to save more and spend less in the new year, you can reach your goal with savings strategies that don’t involve cutting out everything you love. Here’s why you shouldn’t give up little luxuries, and what you should do instead.
YOU’LL THINK YOU’RE ON A DIET
“If you are going to approach your finances with the objective of cutting out things you enjoy, it’s like a diet,” said Klontz. And research has shown that dieting fails to help people keep weight off over the long run. In fact, a UCLA study found that most people who diet gain back the weight they lose, plus some.
“The reason diets fail is because you tell your body that you’re about to starve it,” said Klontz. “Then your body kicks into planning-for-the-famine mode by slowing down your metabolism and telling you to eat.”
“It basically works against you,” he added. “As soon as I say the word diet to myself, I start craving cheeseburgers. The same thing happens with a budget.”
When you tell yourself that you need to restrict spending, you can end up spending more unconsciously or rebelliously. You justify your spending by saying that you deserve to treat yourself because you’ve been depriving yourself. This is why cutting out everything you enjoy as a savings strategy can backfire.
FOCUSING ON BIG WINS IS MORE IMPORTANT
Focusing solely on eliminating small expenses can be misguided. Sure, they can add up over time. But you can boost savings more, and avoid feeling like you have to give up everything you love, if you focus on slashing major costs.
“I’m a big fan of cutting back on the big stuff,” said J.D. Roth, founder and editor of MoneyBoss.com. “When you trim your car expenses, for instance, by driving an old car or selling your second vehicle, that not only helps your budget more than you would by clipping coupons or getting rid of family movie night, but it also allows you to keep those things you love.”
Slashing big expenses and practicing mindful spending will not only help you balance your budget, it will also improve your mental health, he added.
IT’S EQUALLY IMPORTANT TO LIVE FOR TODAY
There’s no denying that it’s important to save for the future if you don’t want to work forever or live a life of poverty in retirement. But your savings strategies shouldn’t involve giving up all enjoyment today to live comfortably in the future.
“It’s important to do both,” said Klontz. “Save for the future, and live for today.”
If you create a life of deprivation, you can get stuck in that mode. Klontz said that he has seen this happen with clients.
Some work so hard to save money that they don’t get any practice enjoying money during their working life. Yet, they have a fantasy that when they reach 65 they can relax and enjoy their money, he said. But at that time, it’s hard for them to get out of deprivation mode.
The other risk you take by avoiding all spending on little luxuries now in hopes of having more money to enjoy life later is that later never comes.
“Some neglect enjoyment of life, which may never come because you could die before retirement,” said Klontz.
A SPENDING PLAN CAN BE EFFECTIVE
People feel depressed when they try to create a budget that focuses on cutting out things. “It’s a terrible exercise,” said Klontz. “That’s why hardly anyone does it, and we all feel like failures because we don’t have a budget.”
So, your savings strategies shouldn’t include a goal of self-deprivation. “You enter with a goal of spending money where it matters most,” said Klontz. You do this with a spending plan rather than a budget.
Ask yourself, and your partner, if you have one, what is most important to you. Figure out your dreams and goals, which might be owning a house, traveling the world or retiring by age 40. Once you’ve identified the things you want to spend money on, cut out spending in categories that don’t matter as much.
For example, Roth said that he doesn’t care much about cars but likes to travel.
“So, I drive a 13-year-old vehicle, which I’ll keep until it dies,” he said. “Plus, I try to walk and bike for as many errands as possible. This frees up room in my budget for more travel and for little luxuries, too _ like gourmet hot dogs and occasional trips to the local wine bar.”
AUTOMATING SAVINGS IS LESS PAINFUL
To make sure you actually spend money on what you value, you need structure. The best way to do this is through automation, said Klontz.
Set up a savings account for each of your goals and name the accounts. If you have only abstract savings accounts, you won’t be motivated, said Klontz. Create a Tahiti vacation 2018 account or a Toyota minivan 2019 account. “The more specific, the better,” he said.
Next, set up automatic monthly transfers from your checking account to each savings goal account. “If you automate these savings, they’re more likely to persist,” said Klontz.
The online bank Simple.com makes it easy to create saving goals within a single account. You can designate the total amount you want to save and the date by which you want to reach your goal. You also can schedule payments for bills. Simple.com will show you how much in your account is safe to spend after covering savings goals and scheduled payments each month, and you can feel free to spend that money you have left.
ENJOY LITTLE LUXURIES, WITHOUT HURTING YOUR FINANCES
If having little luxuries is something you value but you don’t want to end up sabotaging other financial goals, focus a little bit of your savings strategies toward this expense. Create a “pleasure of the day” account or “live in the moment” account, said Klontz.
It’s OK to allow resources for today to enjoy yourself, he said. In fact, you’re going against your hardwiring if you try to defer all pleasure. Setting aside a certain amount will ensure you can afford little pleasures without sacrificing bigger priorities.
“Life is a journey,” Klontz said. “You have to find ways to plan for the journey and enjoy the journey. You can’t sacrifice one for the other.”
