Finances 101 – Part 3: Saving to Spend

Welcome to the next step in improving your financial health – learning the art of saving up before you make a purchase! WARNING: There are some very direct statements in this article that may offend some. They are honest and direct, though. The more offended you get, the more you may need to keep reading.

Money in = Money out

If you are like many people, you spend first and worry about how to cover the cost later. Most of the time, this puts you into the cycle of what is called “living paycheck to paycheck.” The general idea here is that the money that just came in by way of a paycheck is headed right back out the door to cover bills. And, make no mistake, this affects a LOT of people from all different socio-economic groups!

With the articles that have come before this one, I provided ideas and suggestions about how to start getting your finances into a state of being understood and then moving to having a balanced budget. In this article, I will take you to the next point which involves the simple idea of Saving, or “planning ahead” in your finances.


Three little letters. One very small word. Such a simple question. So, what’s the answer? Learning how to save money opens up possibilities. Possibilities are liberating because they empower you with choices. Even more simply, why not? What’s so important about some of those expenses that you have that make them requirements? Stop trying to be better than (or even ‘as good as’) anyone else – be happy with what’s next to you and stop fawning after what’s just slightly out of reach.

But, How?

There are a million different articles, stories, or even books out there that will give you very specific, step-by-step instructions on what changes to make and in what order. They will tell you things to give up, things to substitute, and even ways to get things for free. My advice is much more straight-forward: get over all of the stigmas. Stop placing arbitrary [high] value on things that are, quite simply, worthless. This is something you should already have started doing by differentiating between “Want” and “Need.”

Cost vs. Value

We can all easily determine how much something costs, but few of us truly understand how to determine value. Here’s an example: why does gold or a diamond cost what it does? Think about that before you try and answer. Then, try to answer without referring to how ‘rare’ it is. Are diamonds really all that ‘rare’ if billions of people own them as various pieces of jewelry?

To look at it another way, could you buy a diamond and re-sell it the same day to another person for at least what you paid for it? In a word, no. The value of an item is not something that anyone can calculate using a formula because it varies from person to person. Value can be better understood if you think of it as the reason that you would be willing to spend a certain amount of money to buy something. Your reasons to buy something are likely different than mine or anyone else’s, so why would something have the same value for you as it does for me?

What’s it really worth?

Few of us have any real leverage of what something costs. All of us, however, are completely in control of determining any item’s value. If you spend money on things because you want to brag to your friends or make them jealous, you are significantly over-valuing those objects. If you stop at the coffee shop on the way to work in the morning and get a ‘fancy bagel and coffee’ each day, but you eat noodles every night for dinner, you are not valuing things as you should when it comes to spending on food.

Look over the budget that you have created (assuming you’ve been reading these articles in order). You have already completed the first round of determining value by labeling every item as either Need or Want. After your budget is balanced and you can start setting aside a bit of money every week/month, you will need to be determining the value of the Want items to decide if and when you spend money on them.

What’s it worth to me?

This is a critical point in your efforts. How much ‘worth’ you associate to each item labeled as a ‘Want’ directly affects your overall financial health going forward. To put it another way: ‘Want’ items should be left unpurchased for as long as possible. This will help you keep improving your financial health. Set some ground rules for yourself as to how long something has to be on your ‘wish list’ before you’re willing to spend the money to buy it. I guarantee you that most things that remain on your list for at least 30 days will begin to lose value and your entire approach to spending will start to change.

Spend or Save?

Once you’re saving a bit of money and can watch the amount grow, you’ll then focus growth rate. This is not only normal and natural, it’s exactly what you want to have happen! Your next step is regularly deciding whether to spend or save more.

Decide on a regular interval to evaluate your situation. At each interval, determine how much is in your savings and how that might could be put to use. Choose the best option for you at the time for whether to spend and how much, or to continue saving. Everyone’s situation and circumstances are different, so you have to learn to do this for yourself. Initially, you can do this every couple of weeks.

Spending (to save)

Again, there are all sorts of resources out there that will tell you how to spend your money. I can’t give you specific guidance because everyone’s situation is different. Only you can decide what’s best for you in terms of when to spend and on what. Here are some thoughts related to spending and saving to keep in mind as you’re making your decisions:

  • Spending cash to reduce expensive debt is generally a good thing. Revolving credit (like a credit card) should be attacked early on and pay what you can truly afford to at each installment.
  • Long-term, installment debt (like a mortgage) should generally be paid according to the payment schedule. Adding additional money toward principal should be done only if you truly understand whether you are achieving financial benefit – depleting savings to overpay on an installment loan could leave you in a position down the road to not be able to make the regular payment.
  • Completely wiping out your savings at any point in time is almost certainly a bad idea.
  • Once you have started to establish some savings, strike a balance between growing the savings and paying down expensive debts. There’s little point in stockpiling cash in a savings account that earns 1% a year when you’re paying 22% for the credit card balance you’re carrying!
  • Your first savings should be in a true “rainy day” account. Plan for an event that would bring Noah and the Ark!
  • Only AFTER you have established a savings account that holds enough money to pay all of your monthly bills for some number of months (your goal should be no LESS than four with at least 6-8 being your actual target – and more is even better!) should you think about opening another savings account to save for bigger purchases.
  • Spend money first on things that save you money in other areas so that you will recoup that expense. Do you go to the store every day to buy coffee? Consider buying a quality drip coffee maker (No Pods!) for about $100 and a quality insulated travel mug for about $15. Buy your coffee from a box store. Instead of $3 at the store, or even $.50 at home (Pods!), you can make your morning cup of coffee for about $.05. Stick with home brewing and your coffee maker will be completely paid off in under three months.
  • If you’re buying a ‘want’ item, research prices and understand what sort of price you COULD get it for. Then make that your “I’ll buy it for that” price and don’t spend more for it. Exercise self control to save money by thinking of the savings as what you are paying yourself to wait.
  • Once you’ve balanced your budget, spend only in cash (or by check) unless it is literally impossible to do so. Don’t equate cash in the bank to what the cost is if you have to use a credit card with an existing balance to buy it.

There is a LOT to be thinking about when it comes to finances – this is one of the biggest reasons so many of us end up ‘in trouble.’ What sort of additional thoughts do YOU have when it comes to being mindful of your spending and saving?

Credit and Debit Cards

While credit cards can actually benefit you financially if you use them appropriately (for the consumer, not the bank), building financial health is probably not the time to be using them. If you MUST pay for something with a credit card, but you either don’t have one or you only have one that you’re paying off a balance on, find a local bank that offers pre-paid credit cards that cost you nothing to add money to. A pre-paid card works exactly like a traditional card as far as the vendor is concerned. Your ‘available credit’ is the amount of unspent cash balance it has. Don’t EVER use a pre-paid card that has any sort of purchase, load/reload, use, or maintenance fees of any kind.

Never, EVER, use a debit card. Period. Aside from them being about the most worthless type of way to execute a transaction, they are LOADED with financial risks to you including having your bank account that it’s tied to wiped out and likely carrying fees for its use. Banks advertise these things like they’re some sort of savior device. I assure you, they are not. Avoid them at all costs.

Looking Ahead

This article was intended to help you understand how to save up money ahead of making purchases. This article was all about Saving to Spend. In the next article, I’ll take you through the process of thinking of ways to leverage spending to actually help you save more money moving forward.

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