Are your financial goals shaping your budgeting strategy?

According to a report from the Federal Reserve, if faced with an unexpected $400 expense, 4 in 10 adults said they would not have the money to cover it.

It’s not unreasonable that statistics like these would prompt you to think that Americans are experiencing a savings crisis.  At M3 Wealth Advisors, we often use the phrase “live below your means” when describing the ideal strategy for an individual to be financially healthy and consistently exceed their savings goals.  But what does that really mean?

If you want to consistently hit your savings goals, you may need to sacrifice a few luxury goods along the way. What the phrase “live below your means” doesn’t mean is living a life of complete frugality, never treating yourself and never straying away from your monthly budget of necessities.

In this strategy, you should place emphasis on your ability to comfortably afford more expensive items in the future through adherence to a long-term financial strategy and specific savings goals. If you pass on the latest phone model that was released this month, you may be in a better financial position to buy the dream car that you’ve always wanted next year. The amount that you’ve allotted to save each month towards your long-term financial goals ought to take precedence over spending money on consumer goods that you don’t need.

A Great Example

Principal Financial Group does an excellent job demonstrating what it means to live below your means in a recent advertisement.  

The advertisement is centered around a musically gifted girl and her mother. Due to watching her mother never replace their old and outdated car, the young girl assumes that her mother can’t afford any extra expenses at all. For this reason, she doesn’t even tell her mother when she gains acceptance to a very prestigious (but expensive) music school. Only when the mother finds her daughter’s acceptance letter in the trash does she reveal that the family is able to afford to send the daughter to this prestigious music school. The mother explains that she’s able to afford the music school because she avoided unnecessary expenses, such as upgrading their old but fully functioning car.

This advertisement so poignantly represents the idea of living within one’s means because the mother isn’t avoiding a car upgrade because she simply can’t afford it, but rather because she recognizes that providing funds for the educational expenses of her talented daughter is more important. While making some small sacrifices on luxury goods, such as a new car, the girl’s mother is adhering to her long-term financial strategy and enabling her family to meet their savings goals. Principal Financial Group encourages their clients to “invest in what matters most” rather than to simply spend whatever money they have or to never spend any unnecessary money at all. This mother clearly believes that her daughter’s education expenses ought to be prioritized over upgrading the family car.

Curbing Consumerism

The ability to save money for future goals rather than to spend it on impulsive shopping is an important skill for all people to develop, whether you’re a young middle-class couple hoping to buy your first home or a comfortably-living retiree hoping to put your grandchildren through college.  

The current state of American consumerism makes it all too easy for companies to draw your hard-earned money out of your savings account and into unnecessary impulse purchases. It certainly is a skill in this day and age to avoid consumer pressure and the very sophisticated marketing tactics that companies use to draw in potential buyers. This requires the confidence and wisdom to choose prioritizing your long-term financial goals over the opportunities to impress your friends and peers with expensive items.

The setting and planning of goals is essential if you want to avoid getting derailed by advanced marketing strategies. Many companies market this way because they want to see you blow your savings budget on an impulse buy. When you’re saving for a future goal, whether it be buying a new home or retiring early, you should be prioritizing saving money for said goal over spending money on other luxuries that aren’t within your means. For example, buying a new car, going on expensive vacations, or upgrading to the newest tech product may not be the best ideas while you’re trying to save up for your child’s school expenses.

Your Financial Plan

Pursuing your savings goals is all about careful planning and which specific goals you choose to prioritize. If you have a specific financial goal in mind and you’re unsure of how to get there, we can work with you to establish a savings plan that will get you there. However, you also need to put in the work and avoid consumer distractions that might cause you to deviate from your pre planned savings goals. Are you looking for advice on how to turn your dreams for the future into a carefully crafted savings plan? M3 Wealth Advisors can help.

Take the first step by using our free tool to set your financial goals.