When my clients provide information on their income and spending, they often include savings as items they are saving up for only to spend. Things like cars and travel.
And this is not a knock on my clients at all. I think I have the best clients a financial adviser could wish for. They are knowledgeable and motivated to take control of their money and life.
But saving to spend is not saving.
The problem with thinking this way is that you trick your brain into thinking you are saving more than you actually are. This means you become content with what you are currently ‘saving’, and don’t seek to save more.
Sure you could extend this thinking to the extreme and say, “Nick, I am saving for retirement to spend my savings. Does that mean that money is not savings?”. But that is taking things too literally. There are of course exceptions like saving for retirement. I am referring only to most other things you save for like travel or a car or education, and so on.
Just because the spend doesn’t occur regularly, it is still spend. And it is often the irregular spend items that are large spend items too. So it would be dangerous to exclude this spending from your planning. Or even worse, include as part of your savings.
Just a short one today to encourage you to flick the mental switch from one of saving to one of spending if this is the case for you. The result may be you realise you are actually saving less than you thought, which may motivate you to save more for your retirement. The ultimate spending goal.
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