Do you actively avoid looking at your bank account, because you know whatever number you find there is going to fill you with dread and anxiety?
There are countless reasons why we end up in this situation. Not everyone is lucky enough to earn a living wage, or have affordable housing, or live without high bills.
But for some of us, the problem is much simpler: we’re just plain bad at saving.
You don’t need to be told what saving is. We all understand the basic math that spending less than you make means you have money leftover. But it helps to think about the basics sometimes, especially if you’ve struggled with effectively saving before.
At its core, saving is about not buying. Every time you don’t spend a euro, you get to hold on to it, and in time those unspent euros add up to something significant.
So far, so good. But how much money should you be saving?
The 50/20/30 rule is a popular method to figuring that out. The method was popularized by Elizabeth Warren -- you know her better as a United States senator and Presidential candidate -- in her book All Your Worth: The Ultimate Lifetime Money Plan.
From your after tax income (usually the amount that lands in your bank account):
Your needs include everything that has to be paid: rent, bills, groceries, utilities and debt payments, for example. Warren doesn’t include things like Netflix in here, as it’s not must-have, despite most people paying it like any other utility.
Instead, she classifies it as a want, a category that also includes dining out, Starbucks, clothes shopping and any other things we like to treat ourselves with.
If done well, the rest should then be savings. This is money that can be set aside, invested, or otherwise grown, as long as it isn’t touched.
It’s easy to set a target and insist that’s how much should be saved. The issue for most people is more about not being able to save that much. So how do you grow your savings?
First of all, track your spending. You don’t have to do this manually. There are lots of tools that help you track spending and even categorize it automatically for you. Vivid’s app, for example, will track every purchase you make using your Vivid card, categorize it, and even lets you set limits per category.
That leads to the next step: find room for reductions. You might not feel like you’re spending too much on any one category, but you’ll be surprised how quickly small purchases add up. And it’s not always where you think it might be. It might not be that often-maligned cup of coffee, or even that habit of eating out, depending on how expensive the coffee or meal is. Whatever you find, choose a few categories where you think you can reasonably scale back your spending. Set a limit, and stick to it for a month to see if it helps.
Lastly, start a fund for frivolous purchases. Saving is disciplined work, and can become exhausting. Constantly fighting your better urges can leave you tired and prone to a bout of spend bingeing that undoes all your progress.
So as part of your savings, start another fund -- make it a separate Pocket in the Vivid app -- where every now and then you put some money in for purchases that you can enjoy guilt free. It can be anything from a new phone to just letting you enjoy an extra expensive frappuccino guilt-free. It’ll let you blow off steam, while not impacting your finances.