One vs Many: How to increase your savings


The path to wealth involves several factors - being born with advantages (aka privilege), finding a career that is both motivating and rewarding, diligently investing across diversified asset classes... the list could go on and each of these is it's own post.


But one factor that doesn't get enough emphasis is cash flow. Basically, spending less than you earn.


Total Income - Taxes - Expenses = Savings


I ask all my clients to complete a cash flow template so I can get an idea of how much they spend on a monthly and annual basis. Some clients have a system in place and they can easily provide a detailed report but most people don't track cash flow regularly. I completely understand, it's an onerous task and causes a lot of anxiety.


When I advise a client on how they can save more money I look across their spending and consider the simplest way to increase savings in a measurable way - make ONE big cut to your budget.


For example, you can try to spend less on take out each week and save $100 per month. Or you can cut your DirectTV service and immediately save $125-$150 per month. You made ONE big decision. It may be uncomfortable but it's likely to be easier to maintain and cause less anxiety since it's not a recurring decision you have to make each time you plan for dinner.


Another big one, transportation. Let's say you're deciding to lease a new car or buy a gently used car. Leasing is $700 per month. Buying a used car is $400 per month. This one decision will save you thousands over the next few years. Leasing a new car is one of the most expensive choices when it comes to car buying. It's a luxury to constantly have a new car on hand and therefore you pay a luxury price for the convenience.


If you love having a new car, you can choose to lease the new car. But keep in mind you may be sweating other smaller decisions year round to afford this luxury.


Psychologically, it's easier to make one (or two) big decisions that lead to saving hundreds per month than trying to make several small decisions each month. Keep this in mind as you evaluate your big purchases in 2021.


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