The best way to save money? Don’t spend it…yet

Save money by deferring spending

There are a ton of ways to save money. You can literally spend years reading books and blog posts, using apps, talking to friends, family and financial advisors, creating “saving hacks” and coming up with obscure ways to save a few bucks each month. In a past post, I detailed how my wife and I have challenged ourselves to get rid of unnecessary recurring expenses, saving us over $5,000 per year. The next step after we took on that financial challenge to cut our expenses, our next step was to look at non-recurring items that we were planning to spend money on so that we could budget for those items. To be completely honest, the list scared the s**t out of me. In the items that we determined that we “needed” in the coming weeks, we were staring down the barrel of a $4,700 blast to our savings. These weren’t insane, extravagant items…these were the things that we determined we wanted to have in our life. However, when you actually sit down to document these items, you start to see what it can do to your potential savings in the coming months.

Make a list

Do you ever get to the end of a period of a month or two and wonder why you were not able to save any money? There were dozens of times in my pre-stealthy and wealthy days when I would look at my finances at the end of a month or two, not feeling like I was egregiously loose with my money, but still realizing that I had saved next to nothing. When looking back at the details of the period, I always found a number of justifications, disguised as one-time expenses that came up. “Oh, well we bought gifts for the holidays.” “We will only need to buy one couch, so I can save next month.” “At least now, I won’t have to buy new golf clubs for a few years.” The justification of these expenses all seemed very reasonable and in many cases, it was. But the problem with one-time expenses is that they tend to keep occurring in different forms over and over again, keeping you from saving money. One month it is a new bike you need. The next month it is car tires. The next month it’s gifts or a vacation. Next thing you know, you’ve reached the end of the year and have missed your savings goals by a wide margin.

My wife and I decided that the first step in solving this issue was to at least diagnose the problem and figure out what we were up against. We sat down at our kitchen table and started to list out the items that we felt we would need to purchase in the near future. We tried to tackle 2-3 months as going beyond that seemed pretty difficult to predict. We didn’t set any ground rules for the type of items that should be included on our future expense list, but did focus mostly on the big ticket items. For instance, we didn’t list out food, household consumables or any recurring expenses. The list came together in about 15 minutes, then we continued to add to it over the days and weeks after our initial sit down. The list didn’t seem all that intimidating, until we totaled up what we would need to spend to buy all of these items that we thought we needed. $4,700 was the damage. This included everything from new shoes to tires for my wife’s car to a chandelier for our dining room to an upcoming trip for a wedding.

The list itself didn’t offer any obvious problems, nor did it reveal a clear solution. The $4,700 would consume everything that we had planned to save and depending on timing and probably more. These are expenses that we would have previously just blindly incurred, thinking that it was all part of our regular life. These expenses can easily sneak their way in, disguised as just $50 here or $100 there, but once you see them on a list, you will realize how much damage they can actually do when you are trying to save money.

Prioritize the List

The next step was to find a solution to help us save money on some of these expenses. We went through the list, prioritizing each item into one of three categories: “need soon,” “need eventually” and “want.” Items that fell into the “need soon” category included things that we absolutely would have to buy, such as  or getting our dog checked out by the vet. “Need eventually” included tires for my wife’s vehicle, since we were advised by our mechanic that they needed to be replaced sometime between now and another 10,000 miles from now. The last category included items that we wanted, but did not absolutely need. This included a new vacuum cleaner, my next pair of running shoes, and a purse for my wife. These are all items that we would like to purchase eventually, but will not suffer any negative consequences if we don’t purchase them in the next month or two. After sorting the items into the categories, our “need soon” items included only about $500, whereas the rest of the list could be deferred to a future date.

Defer Spending

The last step for us was a commitment to defer spending on these items for as long as possible. We decided that we would wait until the last possible minute to spend money on any items that would not directly impact our lives if we did not have them “soon.” This does two things for us. The first, is that it allows us to take advantage of the time value of money. Today’s dollars are more valuable to us than those same dollars in the future, so if we can defer spending for six months on an item, that allows this “savings” to earn money for us while we hold off on purchasing. Even if we do decide to purchase it six months later, we still have the added value of that money being invested over that time. The other thing that it does for us is gives us an extended waiting period to think about our purchase decisions. Something that seems important to purchase today may become far less important in the future. One of the items that we had our our “want” list was a brand new purse for my wife. She had the perfect purse in mind, but since it was one of the more expensive items on the list and wasn’t crucial to our lives, we decided to hold off. A month later, she found a purse with the exact same style and function for less than one tenth of the price of the other purse. Even if it does not last nearly as long, she can repeatedly purchase the same purse, wear it out and do it again, multiple times before it starts to reach a break even point financially. There have been a number of items that we look at on this list that become far less valuable to us as time goes by and we get to look at the money we have saved side by side with our list of “wants.” Most of the time, we discover that what we really want is the financial freedom that comes along with saving.

The process is as simple as that. Start by recognizing the upcoming expenses that will be taking away from your savings goals, document and prioritize them, then defer anything that you can for as long as possible.

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