When helping people plan for their financial future, the overriding principle that governs the advice we give is to “control what we can.”, and one of the things we have the most control over is how much we spend and how much we save.
For those that are preparing for retirement, so much focus is placed on how much you need to save each year to be sure that you “have enough” once the paychecks cease. But, what if instead of focusing on a “savings” number, we focused on a spending number instead? Yes, the two are related, but here’s why spending may be better the metric to focus on.
The first and most obvious reason to focus on spending is that spending determines how much you have available to save – but perhaps, more importantly, is the fact that the less you spend, the less you will need to save! In other words, lower spending means a more modest lifestyle, which will require a smaller nest egg to sustain into retirement. Or looked at another way, high spenders face two challenges: the first is that they don’t have as much available to save, and the second is that they likely need to save more to sustain that lifestyle into retirement.
Another thing we notice is that people who are the most successful savers and who have the most care-free retirements are those with low fixed expenses, including housing expenses, car payments, and debt. In other words, most of their spending is discretionary in nature and include expenses that they could cut back if necessary. Low fixed expenses translate into flexibility and choices – two critical ingredients for a stress-free retirement.
We know that the future is uncertain. So, today, the most impactful thing we can do is put ourselves in the best position we can to handle whatever comes our way. Controlling spending, especially fixed expenses, could prove to be a huge step in the right direction.