How can I cover my expenses while also saving for retirement?

Transcript:

Hey, humans. I’m Michael Liersch. This is the About Money podcast presented by Wells Fargo. I’m a behavioral scientist with a PhD in cognitive psychology who loves openly talking about money to help humans better understand their money behaviors.

In Season 4, we’re going to get real by sharing money situations and scenarios that happen all the time to millions of us. Real stories. Relatable and usable. We’ll also be sharing valuable life hacks you can use to stay on track, or get back on track, with your finances. So let’s get into it.

In this episode, we’re going to ask ourselves, how can I cover day-to-day expenses and still make progress towards saving for retirement?

Well, this one is a really hot topic. We all need to live our day-to-day lives. But we all understand we need to pay ourselves forward so our future selves won’t have to worry about money.

So when you look at your day-to-day expenses, there are a lot of stories that I have from clients where they didn’t really understand all the opportunities they had to take small dollar amounts, save them, and make them big dollar amounts later.

So I’m going to give you a story of one particular client I worked with, and this was fascinating going through their budget because they couldn’t find money to save for their future. I’m going to highlight three particular areas for this particular family.

So the first one was their home. Homes are so expensive. For this particular family, when we looked at those expenses that they had, simply by shifting their focus from the home they’re in to an alternative home literally reduced their expenses and allowed them to save for their future, thousands and thousands of dollars per year.

The second one is really around all the different subscriptions. All the different, think of it as devices you have. I mean, some of these devices cost thousands of dollars. How many of these things do you have in your house? How many of these things do you keep buying?

And in this particular family, it was like a new computer, a new device every six months, every year, and new. And think of it like the new iPhones come out. They kept really recycling a lot of these, you know, subscriptions, devices in a very unproductive way that if they just held on to a particular computer device for a year or two longer, if they took all those subscriptions, took out the ones they weren’t using, and really focused on the ones that were adding the most benefit for them, if they bundled the cost. I’m going to be honest with them, with you, for this family, it added up to, again, thousands of dollars that they could take and put toward their financial future.

The third and final one for this particular family, and they ended up framing this around fun, honestly, was around family events, vacations, dinners, all the types of things that families go out and do together. They were eating out all the time. They were taking very, let’s call it unplanned family vacations and trips. You know, all these things increased the costs of their financial life.

So what they started doing is working together. How do we look at all the different things we’re doing as a family and how do we do things that we enjoy doing together but while at the same time making more of our money and creating a situation where we can pay ourselves forward?

So think of those categories in your life. You know, when you’re thinking of covering all those day-to-day expenses, how can you downsize? How can you ultimately look at all the different things that you feel like are needs, but really you’re actually replacing things that may not need to be replaced at this time. And then, ultimately, what are all the things you’re doing that are kind of extras but have become more of a habitual part of your life, like ordering out, eating out, those types of things. How do you combine all of that to say, if I change these behaviors, again, very deliberately, one at a time, in a collaborative way with my family, could I carve off more money to put toward my financial future?

When I told you the story about this family, I’m going to tell you what their starting point was. It was really simply sitting down as a family and acknowledging that they had no savings for their future. And was that the family that they wanted to be?

The second hack here, aside from just acknowledging it, sitting down and agreeing, the second thing they did was write down all the things each and every family member could do right then to give money back to the family.

The third thing they did is started really tracking it, tracking it deliberately. What are we stopping doing? And then where is the money going? And what they started seeing is that in a very short time, think of it as three to six months, they had cut out things that they barely noticed and then actually added an emergency fund to their family so when unexpected expenses came up, when just the unexpected introduced themselves in the family, they had money available to them.

The parents felt great, the kids felt great, and that’s what got them on the journey in the story I told you about, which is, oh my gosh, they just want to do more of it so that they could move beyond even just having that emergency fund and move into this idea of having actual investments toward the parents’ future. Ultimately having insurance, so think of something like term life insurance, so if something happened to the parents, everyone would be OK.

It’s really hard to engage in this particular life hack alone, especially when you’re in a family. And so I would say if you are alone, I would find a partner, a friend, someone to collaborate with and to go through this journey with them together. Even if you’re just doing it for fun.

So if you’re trying to save for your future, and I actually have a friend who’s doing this with another friend of hers from Australia, they’re actually working together to actually make the most of their money and their financial lives because they are kind of stuck in this rut of spending everything they had and they wanted to make sure that they made the most of their money.

So, when you think about covering day-to-day expenses but still making progress towards saving for retirement, there’s so many different tools and capabilities to enable you to do that. Let me just highlight a few, just so that you can focus your energy.

So if you are someone who’s trying to accumulate enough money for your future, you know, look at the job that you have, your employer. Oftentimes, they have savings programs that you can contribute to. Sometimes they match them. They’re just so many things that are, think of it as 401(k)-like, they call it a defined contribution plan that you can allocate money to.

Some employers have what’s called the defined benefit plan. So think of it as like a pension plan. You have Social Security, you know, look into that. How much would you get ultimately if you kept working your whole life?

Look at things like an individual retirement account or an IRA. There are different types of them that have different implications.

So there are just so many benefits to looking at those ideas, first and foremost. So if you’re not doing it, please, please, please do that today.

That’s it for this episode. If you really like the episode, please share it with your family and friends. If you have a topic you’d like us to address, email us at AboutMoney@wellsfargo.com. The About Money podcast is produced by Wells Fargo.

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