Beyond Finances Podcast #001: How to Balance Spending Today with Saving for Tomorrow

how to create a financial plan

Beyond Finances Podcast #001: How to Balance Spending Today with Saving for Tomorrow

by

In this first episode of the podcast, we look at what it means to enjoy your life today while still planning responsibly for tomorrow.

Welcome to Beyond Finances! In this very first episode of our brand-new podcast, we want to kick off the conversation by looking at three essential elements of financial success: Balance, Intention, and Focus. Over the first three episodes of the show, we’ll take a look at each of these in turn and reveal what they mean in context of your money — and how you can put the idea of each into practice to enjoy more success in your financial life.

First up, we’re tackling balance — and exploring what it means to enjoy your life today while still planning responsibly for tomorrow (and how you can pull this financial feat off for yourself).

Jump into the episode here, or check out detailed show notes and takeaways below:

Our Favorite Shareable Moments & Takeaways

  • Creating balance with your money means understanding how much is appropriate to spend now to live your life fully, while also knowing how much you need to save for tomorrow so you can ensure you’re going to be secure in the future.
  • If you’re asking “how much can I spend?” you’re asking the wrong question. Back into that based off how much you can save; prioritize saving and then you may be able to spend whatever is left.
  • Human beings struggle to be empathetic to our future selves — and that makes it really hard to save and invest for tomorrow.
  • You can save too much. And by that we mean, saving so much that you can’t enjoy yourself today. If you don’t engage in life today, you may never actually end up doing it.
  • Life isn’t linear, which means your financial plan shouldn’t be linear or a one-time event. This is an ongoing, evolving, proactive process that changes as your life changes.

Further Reading & Resources Mentioned in the Show

Full Show Notes

1:03: We’re kicking off this brand-new podcast by looking at the 3 key factors to building wealth and being successful with both your money and your life: balance, focus, and intention.

1:44: These are what we feel are the fundamental pillars to success, which is why we’re covering them first — before we dive into other topics in future episodes.

1:53: Master these three concepts, and you’ll be able to live the life you really want.

2:01: But first! Who the heck are we, anyway? Answer: Eric Roberge, CFP and founder of Beyond Your Hammock, and Kali Roberge, financial writer and Chief Content Officer of Beyond Your Hammock. We met in 2014, bonded over our shared passion for self-improvement and personal finance, and here we are four years later: married, living together in Boston, and sharing our favorite conversations about money and life with you.

5:24: Now, let’s dive into the convo about balance — about what that looks like, what it means, and how you can achieve it.

5:58: Creating balance with your money means understanding how much is appropriate to spend now to live your life fully, while also knowing how much you need to save for tomorrow so you can ensure you’re going to be secure in the future. It’s a delicate balance that’s not always easy to achieve.

6:16: A good rule of thumb for saving? 20% of your gross income. And then look at what’s left over, which is what you may be able to spend freely on fixed and discretionary expenses.

6:31: There might be years where you don’t make as much money, which might mean you can’t save as much — and that’s okay! You can’t say, “well this year we didn’t save that 20% so our whole plan has blown up.” Maybe you can make up for that in the future; maybe your job or income changes. You simply need to know there might be some savings to make up for. Things happen in life. The important thing is knowing how to adapt.

6:47: It’s appropriate to choose a place to start — any place! And then start taking action. If it doesn’t work, be responsible and make an adjustment.

7:36: If you’re asking “how much can I spend?” you’re asking the wrong question. Back into that based off how much you can save; prioritize saving and then you may be able to spend whatever is left.

8:08: Again, start with the 20% savings rate as a baseline — then make adjustments from there. Life isn’t static, so “20%” isn’t always going to be the magic number for you.

8:20: It depends on what you’re looking to do with your life. Want to retire early? (Or retire late?) Start a business? Send kids to school? Travel the world? You need different levels of saving for different goals.

8:39: If you’re looking for something like financial independence with the ability to make work optional, your savings rate needs to be much higher than someone who wants to work until 60 or 70. You may need to save 30-40% — or even more.

9:25: In general, saving for a normal retirement that’s decades into the future (i.e. you’re 30- or 40-something now and plan to work to about 65-70), a good baseline might be to save 15-20%. If you have other goals on top of that — sending kids to school, etc — then you add to that savings rate.

9:53: And remember — tweaking things and turning dials along the way is part of the process! Just because you start of saving X% doesn’t mean you’re locked into that forever (and the earlier/more aggressively you start saving, the easier it is to back off, save less, or stop saving sooner in the future). Time is a huge advantage.

10:33: If you save a dollar at age 20, the compound effect of that dollar is much much higher than a dollar you save at age 40.

10:42: Keep in mind, “balance” does not mean get everything perfectly right, in perfect harmony, each and every single year of your life. It might mean being super aggressive with your savings for a period of time — and then becoming much more relaxed in the future. Or maybe vice-versa; maybe there’s a reason you need to back off aggressive savings now because there’s something else you want to accomplish in your life that needs funding (but you know you gotta get back to saving in the future).

11:22: Balance could also mean taking advantage of times in your life where you’re able to save more, especially if you know you’re coming up on a period of time where you won’t be able to (i.e., saving aggressively before you have kids so there’s less pressure to save — on top of all your other new expenses — once babies arrive). In periods where you have low fixed expenses, that’s a great opportunity to become an aggressive saver to take advantage of the situation.

12:24: All this is a long way of getting to what’s actually the tagline at Beyond Your Hammock: use your money as a tool to live well today while still planning responsibly for tomorrow.

12:52: Enjoying yourself today means looking at what you’d like to have in your life to be able to say you’re living fully right now. At the same time, you know the future is coming and you can’t just forget about it. You gotta be able to pay for it! Preparing responsibly for tomorrow means just that: look at the future, understanding that you’ll need money to fund that future, and then saving enough so that you can afford the lifestyle you want down the road.

13:35: When planning for the unknowable — as the future is — it’s important to plan conservatively. That means saving more than you might otherwise think you need. It’s better to err on the side of more savings, rather than not having enough.

14:22: “Save more than you think you need” might not sound balanced, but here’s where you get some of that balance back — once you set a reasonably safe (but not extreme!) savings rate, you’re free to spend the rest of your money freely and without guilt on whatever you want to do today.

14:36: This conversation is about balance, but let’s be real — it’s pretty easy to find yourself living at an extreme. And with money, most people find themselves living at the “spendy” extreme: spending too much money today and ending in a position where they don’t have enough for tomorrow.

14:43: There’s actually a reason this happens. Most of us suffer from a cognitive bias known as temporal discounting.

14:46: There’s a famous study that illustrates this and it’s known as “the Marshmallow Test.”

15:15: We tend to gratify our present selves instead of our future selves — even when our future selves would get a bigger reward — because it’s really hard to understand what we’re giving up by choosing our present self that we are closely identified with, over our future self (who might as well be a total stranger to us).

15:26: Human beings struggle to be empathetic to our future selves.

16:04: A good solution, or exercise to try, to become more empathetic with your future self is to actually use your imagination. Take a moment to imagine yourself when you’re 60 or 70 years old and can no longer work or don’t want to work. Get in touch with the reality of your future self. That makes it easier to start saving and investing for that person.

16:33: But be careful! There’s a pitfall here too and it’s just as big as spending too much today. It’s the opposite problem: what if you’re so caught up and worried about the future that you miss out on living well today?

16:45: You can save too much. And by that we mean, saving so much that you can’t enjoy yourself today. If you don’t engage in life today, you may never actually end up doing it. What if you save all this money, you get to retirement age… and then you die, and never experience what you spent your whole life only dreaming about?

17:17: It’s all well and good to save for tomorrow and really turn up the savings rate if you have the ability to do so — but bear in mind the more you save, the less you have to spend right now. That’s just simple math.

17:30: If you’re saving so much right now that you’re giving up all opportunities coming your way right now… it might be time to reconsider. You don’t want to miss out on today because you’re overly focused on tomorrow.

18:40: It could be really easy to talk yourself into overspending in the moment, though. Again… it’s all about balance.

18:58: If you choose to spend rather than save, do it in a way where you know you can make up for that in the future. Maybe that means cutting back on some future spending so you can catch up on savings. You shouldn’t always be finding yourself saying, “ah, I can’t save right now — I have this thing I want to spend on.” It can’t be choosing spending over saving every time.

19:32: When it comes to finding that anchor point for you — your version of living well today while planning responsibly for tomorrow — is to understand what you value and what your priorities are.

19:38: Create a list of all the things you want to do today and tomorrow. Brain dump all your wants, needs, ideas, whatever comes up for you. With all those items, rank them in order of priority. Ask, “If I could only do ONE of these things, which one would it be?” That’s #1. Then ask the question again to get #2, and so on until you work all the way down the list.

20:45: Most times, you can’t fully fund all the things you want to do today and tomorrow, all at the same time. If that’s the case and you can’t hit your top 3-5 priority items, maybe there’s an adjustment that needs to be made. (Cut back on spending, reconsider your priorities, look for ways to earn more so you can save more, etc).

20:53: With your list, you also need to hold yourself responsible to making sure there’s a pretty even mix between today and tomorrow. If the first 5 things on your priority list are all about today, you may need to reorder your items so that you’re not completely ignoring tomorrow’s needs or goals.

21:10: This is difficult and tricky to do — especially on your own. Consider bringing someone else into the conversation to help add perspective. That could be a partner, spouse, friend, family member, coworker, or even a professional like a financial planner or other coach or advisor.

22:07: It does become easier and easier as you go through the process, experience more, and learn about yourself. Financial planning as a whole is a process. It’s not a one-time event. Things change: your needs, your income, your expenses, your goals, your priorities, your self. You need to make adjustments and tweaks to your financial plan as you go to take life’s changes into account.

22:36: Life — and your financial situation — will fluctuate. We know that. Instead of trying to cling to a status quo, treating this as a process that you’re periodically checking back in with allows you to move between extremes (or between aggressive savings and perhaps not saving a thing at all). But as long as you consistently strive to find the middle ground between two extremes and don’t hang out at either end too long, you can be reasonably sure that you’ll be alright.

23:39: In life, we know there will be moments when things happen that are not in our control. But we know that, in two weeks or two months or two years, we may be in a different position. Life isn’t linear, so we can’t just say, “we’re gonna do X and then Y and then Z in that order.” We don’t know how any of this is going to play out — except that it will more likely feel like a roller coaster ride than straight lines that just keep going up and steadily progressing.

24:55: Let’s say you’ve been nodding along this whole time and you love this idea of balance in your life — what about the day to day? It gets tricky when applying these concepts to your everyday life and making decisions about what this balance should look like in the moment. How do you make all the minute decisions about “should I spend right now or should I choose to save instead?” that you have to deal with countless times in a single day?

25:31: You have to know what you value. You have to know what’s important to you. You have to be able to make intentional, mindful decisions… which is exactly what Episode #002 of Beyond Finances is all about.

Want More from the Podcast — and Your Hosts? Here’s How to Connect

We’d love to connect with you and continue the conversation!

Follow Eric @BeyondFinances on Twitter and Instagram
Follow Kali @KaliRoberge on Twitter and Instagram

If you have questions or comments, send us an email at team@beyondyourhammock.com. You can even chat with Eric about becoming a financial planning client at BYH by clicking here.

And of course, we’d love to hear what you think. Share your feedback by leaving your review on iTunes. It means a lot.