Each year I make an effort to save a sufficient amount of capital. I do this through a system I set up using direct deposit of my paycheck and marking funds in various accounts for a specific purpose. Additionally, I am fairly frugal and don’t spend a lot money (in fact spending a lot of money causes anxiety for me).
However, I have a desire to save a little less in 2015 than in previous years, where I have wanted to save all that I could.
Goals are best defined using the SMART framework, as described recently by Dividend Mantra. Feel free to step out and read about that, I will be right here. I won’t be rehashing those details, because I hesitate to call my approach goal setting, plus he does a great job of explaining the framework. I hesitate because once my system has been set up, it is automatic and the result is also automatic.
I set the system up to run on it’s own, which is very inactive. In order for it to change, I have to make an active adjustment. That should not occur because I am setting up the system within my means, even the desire to spend more will be within my means (see below).
By the end of the year, the following will have occurred:
- 401k Maxed (18000 this year, the IRS raised the limit from 17.5k)
- Roth IRA Maxed (5500)
- 600 per paycheck will be deposited in brokerage accounts for future investments
- Remaining funds deposited into spending account, to do as I wish
- This can include anything. Spending/Saving/Donations
Life could throw me a curve ball, which may require me to reduce some of the contributions above. This has a chance of occurring (especially with the house), but I have an emergency fund that I think is sufficient to cover most things.
Reducing Spending Anxiety
It is hard for me to pay my credit card bills on each pay day (I charge as much as I can to my cards and pay them off as much as possible at each paycheck). It doesn’t matter if I have spent more or less than I was supposed to, the act of parting with my earned money always hurts.
For a long time, I always worried about making purchases. This was until I made the decision to “allow” myself an account to do whatever I wanted with. This account is all the spending (bills, food, etc) that I do. This has reduced my anxiety because these funds aren’t for saving. If I end up saving a little extra, I am pretty pleased by it. In fact, many of my Loyal3 purchases last year were from funds I didn’t spend in this account.
A fun little side effect of this system, is that it allows me to figure out what I spent last year without much hassle:
26 * bi-weekly deposit – cash in account + credit card balance
*Edited after posting: I realize I am very fortunate to be in this position and hope I do not come off as insensitive.
Desire to spend more?
I am not feeling as frugal as I have in the past. Partly due to the house purchase and my desire to make some improvements to it. I don’t really have anything in particular that I want to spend money on, I just feel like I want the penny pinching stress to go away for a bit. How will I spend more while remaining within my means?
There really isn’t any secret to doing this, but when you make more money you can spend more (if you choose). I am going to have a busy year at work and will make a little extra cash as a result. This cash will be part of the “Remaining Funds” bullet above. Of course, if a miracle happens and work is normal this year (which would be great), the extra funds won’t appear, but I won’t be over extended either. Pretty straight forward.
That is how the system is going to be running this year. The only potential change is if I choose to save more and then I would modify the amount going into the various brokerage accounts. Otherwise, I expect this to remain in place until the end of the year.