Do You Save Before You Spend or Spend Before You Save?
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Without the intention of beating this question to death, I am asking through the perspective of a financially responsible individual. After landing a job and receiving my paycheck, it was “personal finance blogger” instinct to immediately move some money into the savings account and the Roth IRA.
Then, I thought:
I’m quite able to resist splurging. I know there are things coming up that I will need to spend money on (phone bill, school applications, transportation, and food). Sure, I can budget and estimate what I’ll need to spend but budgets have never been successful in doing what it is meant to do (for me). Why not pay for the necessities and save the leftovers?
Being liquid may be important to people at certain times of their lives and it certainly is for this time in my life. With dental school applications and college loan repayments, saving isn’t a top priority. Debt reduction and a future career take precedence over hording cash that could be better utilized to invest in myself.
Then, I rethought:
Saving a little now can make a big difference later. It’s never good to break sound habits that have led me to be financially responsible up to this point. If frugality and smart spending did so well for me, sticking to them while I have steady income could only benefit my financial situation. Why not saving first and force myself to spend the rest wisely?
Ease of access to money is a major reason behind why people spend it. Logic dictates that you can’t spend what you don’t have (though credit cards shatter this logic). If I move money into savings, I’d need time to take it back out. A delay in making a purchase can be a method of deterring myself from impulse spending. Maybe I’ll find that 2-3 days later I don’t really need whatever it is I was going to buy.
Frankly, to me, money that is out of sight is out of mind. My checking account is the one that I actually check on most often. As for savings and retirement accounts, they get a little attention maybe once a month. So, if my checking account balance is running low, I tend to curb my spending regardless of how much I have saved up.
The Decision
I took the preventative approach and saved first and spend later. Ever since I’ve gotten a steady income, I admit that I’ve been spending a little more than I normally do. With less spending power, there will be a constant voice in my head alerting me of my financial situation which would therefore convince me to stop spending or at least spend less.
The “spend first and save later” is not a bad option but it is definitely not suited for those who cannot control their finances. Many people have funds liquid enough so that they can buy what they need to buy. Whatever is left is saved, which would encourage one to spend less so that they can save more.
Photo credit: tsmall
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