How to save your money so carefully

For the couple I was meeting with, what they were really asking was whether it would be possible for them to retire early based on their current savings. But for a young couple just having kids, the same question is likely to center on saving for college or moving into a bigger house. People ultimately want to know if they will have enough money to do the things they still hope to do.

Digging deeper

To begin answering this question for yourself, you first need to know the type of life you want to live. You must understand how much you are spending versus how much you are earning. But determining your spending needs is a tough nut to crack.

That’s because spending decisions are heavily influenced by quality-of-life considerations. Some people hire house cleaners and lawn services, while others prefer doing it themselves. Eating nice meals out frequently may be the spice of life for you, but others enjoy cooking at home.

Decisions on the bigger-ticket items have the greatest impact. A large house will require a larger down payment, meaning less liquid savings. Some people aspire to drive nicer cars for short periods, while others want to drive cars until the wheels fall off. Then there’s that little decision about having kids, which will have more than a slight impact on your financial trajectory.

Acknowledging the things you consider important to your quality of life can give you a great blueprint for the amount it will take to sustain that life.

Struggling to save

While some who ask “Am I saving enough?” are seeking validation, others are worried that they haven’t saved enough.

Recent research finds that 68% of people believe they’ve saved too little — but only 3% are actually following through by saving more. This isn’t surprising. It’s the same disconnect you find in all endeavors that require consistent action. We can all get charged up on a jolt of motivation, but when it’s time to implement, we freeze.

Thoughts bubble up about the big trips we want to take this summer, or that luxury car we’ve always wanted (and deserve). We start thinking about putting more money into our 401(k), and we realize we need to limit our current spending to make it work. Then it doesn’t sound like such a good idea.

This is when what seems simple in theory (saving more) becomes hard. Making choices that change our quality of life now is more painful than we originally thought and often results in inaction.

The answer

The only way to know if you are saving enough is to piece together your financial puzzle.

Take inventory of what you’ve saved and how much you anticipate you can still save. Set up automatic transfers of money from checking to savings — but watch the credit card bills. Automating savings while accumulating credit card debt is counterproductive.

Working with a qualified advisor can make an enormous difference. Studies have shown the effect that good advice can produce. Often, this advice helps prevent you from ratcheting up your lifestyle too quickly in the first place.