Today CafeMom is so excited to welcome Jean Chatzky, award winning journalist, bestselling author, and motivational speaker. Jean has been teaching Americans how to manage money for 15 years.
Plus, she'll be answering a financial question from one lucky CafeMom. Ask Jean your money question in the comments on this post.
The Shoes vs. the Villa in Italy?
By Jean Chatzky
When we’re struggling through a recession, it’s hard to look far into the future and think about your retirement, but you should! Today you might be in your thirties, but tomorrow it’ll be 2033, and you’ll want to retire to a villa in Tuscany or simply have your mortgage paid off.
Name Your Future Hopes and Dreams
Of course, retirement plans are different for everyone, but it’s smart to make your dreams into something tangible by giving them a name. Instead of a retirement fund, call it “The Villa in Italy Fund,” for example. Put a little Frank Sinatra on your iPod or pictures of Tuscany or Umbria on your fridge—whatever reminds you of your future plans. Take a manila folder and put all your account statements in that folder, and decorate it with postcards from the Amalfi coast in Italy.
Sound corny? Sure, but what you’re doing is building an emotional environment within which you can save money. All of these things work together in harmony to help motivate you, and then when you see a cool, new, and unnecessary pair of shoes, it will be easier for you to say to yourself, “This is a choice between the shoes and Italy.” All of a sudden, you can leave the shoes in the store.
Saving Small Can Add Up
One reason many middle-income families don’t save is that they don’t believe they can come up with big enough sums of money to do it effectively. The fact is saving small amounts can be quite effective.
Start with a few dollars a day. If you can’t do that, start with your change. It sounds trivial, but I’ve heard story after story of people who accumulated hundreds of dollars that way, realized they could do it and worked harder to save even more. Then add an automatic transfer from checking to savings every month. Some banks are even willing to transfer money weekly if moving smaller amounts more frequently feels easier on your wallet.
Saving Money Can Heal Your Financial Soul
Finally, recognize that the saving process heals. It makes you feel better — like a better person, a better spouse, a better parent — to know that you have something put away for your future. Even saving small amounts of money can have a calming effect on your financial soul.
So, beyond the psychology, how do you save the most money? By not spending money!
I am not being flip or sarcastic. I am totally serious. Saving money means making a conscious choice to not buy those shoes and instead leave the money in your bank account — or your wallet — where it can grow into a little slush fund that will eventually become a bigger slush fund that you can eventually invest to fund your life’s dreams and goals.
Track Where You're Spending Your Money
The only way to get there is to start tracking where your money is going today. This is a tedious exercise — I want to acknowledge that right off the bat. But you do not have to do it forever. Instead, for the next month, make a commitment to write down every dollar — every dime — that you spend and where it goes. You can do this by tucking a notebook into your bag or back pocket and being diligent about taking notes, or you can (as I do) get a receipt every single time you make a purchase, shove those receipts into your wallet, and load them into a log (pencil and paper or computer) every few days.
Either way, what you will have when you are through is a road map that shows you where all of your money has gone. I guarantee if you have never done this, you will be surprised. You may see that more of your money is going to pet supplies or random trips to the grocery store or other nonessentials than you ever thought.
Once you have this information, you have choices. You can decide that you are going to spend less on certain items. You can decide that you are going to save the money that you do not spend. And you can put it away — in a money market account earning a decent rate of interest (these change constantly, but you can get a list at Bankrate.com) — until you decide where to invest it for the future.
So what’s it going to be; a pair of shoes today or a more comfortable tomorrow?
Have a money or financial question for Jean Chatzky? Leave it in the comments below. Jean will be back next week with an answer for one lucky reader.
Jean Chatzky is the financial editor for NBC’s Today show, a contributor to The Oprah Winfrey Show, and hosts her own daily radio program on Sirius XM’s Oprah & Friends Channel. She is also the author of numerous bestselling books, including The Difference: How Anyone Can Prosper in Even the Toughest Times (Crown Business).
She blogs daily at JeanChatzky.com.