Do you need spending goals to save?

Many public finance bloggers talk about the importance of goal setting when you’re trying to get out of debt and start saving.  They suggest putting a picture of Tahiti or the house you’re going to buy on your fridge.  If you don’t have any goals, then you must manufacture one so that you can strive for it as you eat your meal of rice and beans.

Sure, goal-setting can help you be more disciplined in your saving/spending… but to what purpose?  If you have to manufacture a goal does that make scrimping a better use of your money than not having that goal and just spending the excess?

The ability to buy fancy cheese every week at the grocery store is not the kind of thing that usually comes as a set goal.  But if you don’t have some pie-in-the-sky goal, maybe you’ll feel less guilty about doing it!

Tied with this is what to do with your extra money once the debt is paid off and you’re saving at a nice clip for retirement.  “Savings goals” become “spending goals” if your saving is only motivated by the things that you can buy.  Sure, you should loosen up your lifestyle a bit until it’s comfortable, but there’s no reason to look for places to spend your money. Eventually a reason to spend it will come to you on its own unbidden. Having a lot of money saved up can provide freedom.

If you get a windfall, don’t think, “let me find something to spend this on.”  Either you’ve got a list of things you need/want to buy or you can stick it in savings, because something you need/want to buy more than whatever you think up now will come later and you will be prepared.

Our first two years with real jobs (but used to living on a tiny fraction of the salary in an expensive city), DH and I had this discussion– what should we do with the extra money? Save or find some way to spend it? Two years later a very good, very expensive, reason found us and we were very glad to have that extra money saved. We were able to do something wonderful we would have been unable to do otherwise.

Now, that isn’t to say you should keep washing out baggies etc. if you’re putting away 100K/year, unless you *want* to wash out baggies. Just that finding spending goals isn’t necessarily the way to go. Find a standard of living you’re happy with and don’t look for things to purchase. Save what’s leftover.

Do you need goals to save?  Alternatively, are you like Jacq and FGA and need spending goals in order to lifestyle inflate?

12 Responses to “Do you need spending goals to save?”

  1. feMOMhist Says:

    coming from a mother who budgets down to the penny, and having fought way too much in my first marriage about money, I now keep goals rather than limits in mind. We each have our “wasteful” expenditures, but I can’t quite “safe what’s leftover” because when we did that there just never seemed to be much leftover. So now we auto-deduct the savings I’m comfortable with, and so far the lifestyle has not been adversely impacted (other than the two expensive additions and of course half pay on sabbatical eeek)

  2. First Gen American Says:

    I certainly have friends who have an uncontrollable desire to spend any kind of windfall as soon as they get it. I almost think they’re wired that way, and not spending all the excess requires a major change in mindset. I think probably an approach similar to feMOMhist would be good for those folks and also re-diverting raises or parts of them to automatic savings.

    I definitely have an issue spending in a number of categories unless it’s at a tag sale for pennies on the dollar. (clothes, housewares, furniture, toys, books). For me, budgeting some money in those areas is actually a good thing..I tend to go a little overboard using things that are far past their useful life.

  3. Holly Says:

    I definitely need both spending AND savings goals. Otherwise, there would be chaos.

    Savings goal examples: $25,000 for Strict! E Fund (we’re close, only need $1700 more! Whoopee!)

    $12,000 for kids’ tuition (due Aug., we’re at $6,000…will finish it w/ tax refund and DH’s bonus – hopefully).

    Spending goal examples: DH’s surprise birthday party (it’s a big one), $800 (have $400 so far).

    $5000 for Disney (or any type of) family vacation: $50 so far…just have too many other spending goals!

  4. rented life Says:

    Like FeMomhist, I budget to the penny. Sometimes I have very specific goals–like when we know we’re going to travel, or I know the car needs to go into the shop, or currently we know we want to move out of where we are. But we also have always carried debt, so usually extra money is split–savings and debt. Frequently I’ve had a saving goal of “save money because shit happens.” Because we’d rather have a cushion in savings to use when an unexpected event does happen. Too many financial planners say if you have debt to put all extra money to debt, and we tried that once. Without the cushion, when something happened, we had to put the emergency on the credit card–thus adding to the debt we’re trying to pay off. Didn’t make much sense.

  5. femmefrugality Says:

    I try to keep the three month rule…I try to have enough saved so that if something happened to my source of income, I’d have three months to get my stuff together. Also if something big comes along…I’ll be prepared! Then all my other money I can save towards whatever goal I may have at the moment.

    *TRY is the operative word* :)

  6. chacha1 Says:

    I try to keep just a TWO month E-fund, because I’m still in debt-repayment mode and because right now either DH or I could cover all the basics on our individual earnings. Back in the day when one or the other of us couldn’t cover it, I was very uncomfortable having only two months’ expenses saved – though often, that’s all we had. Living on one income when there are two incomes is very nice for the money management when it’s possible. Both of us have been able to take a couple of deep breaths since we got there. Not that long ago. And we are 52 and 46. (urgh)

    I NEED spending goals in order to save long-term, because there is just too much I want to do in the short-term. The non-negotiable paid-off retirement property by age X is the big motivator and it makes quotidien “wants” look pretty trivial … because that’s a BIG chunk of spending!

    • nicoleandmaggie Says:

      Living on one income when there are two incomes is definitely nice. This year we’re having to be more careful because we’re shoveling a lot of that extra money into retirement, so we need a larger than usual emergency fund since we can’t just pay for emergencies out of the next month’s income.

  7. Trish Says:

    omg- that IS my measure of happiness- being able to buy fancy cheese each week. and no matter how solvent you are, PLEASE keep washing out baggies and reusing them. there’s the environment thing, you know.

  8. bethh Says:

    I’ve been debt free for 2+ years (I rent) and have been saving diligently for retirement for 13 years (usually in the 15% range, not at all hitting the max allowed). The last couple of years I’ve definitely spent a lot more on travel – I haven’t gone back into debt but I also haven’t seen my savings increase.

    Now I have a very specific dollar amount I want saved by April 2012 and it’s really helping me cut down on frivolous spending (though I DID buy some nice cheese for a recipe this weekend!). So I guess I’m a person who needs a savings goal AND a serious reason. My savings will represent a years’ worth of tight living, or six months’ living like I do now… I’m hoping I won’t need it but it’ll feel good to have it if I do!

  9. Comradde PhysioProffe Says:

    PLEASE keep washing out baggies and reusing them.

    No f*cken wai.

  10. Jacq Says:

    I think I scared myself spend-less years ago when I used to do this strange thing I’d call “monster shopping” with windfalls (which, when you’re self-employed like I was at the time – come around ALL the time). I have a post on it somewhere in the archives. My son and I used to literally say “f*cke the bills” back in those days.
    I’m learning to take ze baby steps these days and do it with planning and thought. Must be doing okay since I’m (finally!) attempting to decorate and dropped a few grand on a caribbean cruise in February. ;-) I didn’t want to, but a friend made me do it. LOL

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