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Smart spending, smart saving

Want a bigger savings account? First take a look at where you spend your money; those choices hold a wealth of information about your priorities.

When it comes to saving, storing away a portion of your paycheck each month is just half the battle. The other half is to spend carefully — because whatever you don't spend, you can save. "You have to spend smart to save smart," says avid saver Carla Swanson.

Smart spending doesn't mean depriving yourself. Take Swanson, an emergency department technician at a hospital in Youngstown, Ohio: She has been on three cruises, travels the world and buys her cars new. Here are Carla's tips for spending wisely.

Avoid debt

How can you steer clear of debt? It's simple: Don't spend what you don't have.

  • Thinking of leasing an expensive TV or other big ticket item? Don't do it. If you can't afford it now, you probably won't be able to afford it later. In the long run, it's cheaper to save until you can buy it outright.
  • Avoid using credit cards for expensive purchases. At their best, credit cards can help solve cash flow problems. At their worst, they encourage you to spend beyond your means.

Track your expenses

Figure out where your money is going. "I don't carry cash, it's too easy for me to spend it without thinking," Swanson says. "With a debit card, I know I have to write down what I spent in my checkbook and that makes me think about the purchase."

Know how much you spend on essentials like a mortgage, utilities and other standard bills like groceries and gas. Once you see what's left over you can strike a smart balance between discretionary spending and saving.

Update your savings strategy

If your financial situation changes, reassess. "When I get a raise, I might keep some to spend now, but my savings account also gets a raise," says Swanson. How else does Swanson save?

  • She takes advantage of her employer's 401(k) match. "It's like free money," Swanson says.
  • Instead of setting money aside for her retirement fund, she has her retirement contributions automatically deducted from her paycheck each week.
  • She checks out books and DVDs from the library.
  • Swanson organizes game nights with her friends and hosts them at her house.
  • After she pays off her car, Swanson keeps making payments — to her savings account. That way when she buys the next car, she'll need to finance less of it.

Swanson's biggest saving suggestion? Start now, the younger the better. She got wiser about spending her money in her teens and got serious about saving for retirement at age 27. "If you can put something in your retirement fund early, then it has years to accumulate earnings," Swanson says. And all those compound earnings can really add up.

Fast Fact: Almost half (46 percent) of employees working full time said not saving enough money gets in the way of their personal financial success, according to the 2nd Quarter 2011 Principal Well-Being Index.

Contact your financial professional for more information

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The reference to service we provide in this article relates to financial professionals who are sales representatives of the members of the Principal Financial Group®. They do not represent, offer or compare products and services of other financial service organizations.


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