One of the toughest attitudes to adopt as a novice budgeter is being happy with less than the best. You know those less-than-the-best items: generic-labeled groceries that resemble props from '70s sitcoms, used books and furniture, thrift-store clothes.
But even harder is giving up something -- something nice -- you already have, such as forgoing your latest-model iPhone for whatever your carrier offers for 99 cents or trading in your luxury sedan for a low-cost hatchback.
It's a hard choice, but it can have immediate and long-term payoffs for your savings account. Follow these steps to get started.
Step 1: Where can you save?
The first step? Think about what has financial value, but that you (possibly) could live without. In many cases, these could be items you chose to buy or rent before building your savings.
For example: your car. Is it a sedan or SUV you bought when managing five years of payments seemed doable (or desirable)? Or an entry-level luxury model similar to what your coworkers were buying? If so, it may no longer fit into a sensible money-management strategy.
Take a look at your current car's Kelley Blue Book value to see what you could sell it for. You might be pleasantly surprised!
Step 2: Consider the trickle-down effect
Next, evaluate the potential savings of downgrading the item. It's true that almost any purchase has lower value once you own it. You car, for example, likely drops in value each year, and you may have bought an iPad 2 for $599, but good luck selling it for that six months later.
Even if your original purchase doesn't have the same value, offloading it can reap big savings over time. A less expensive car, for example, will likely have cheaper maintenance and insurance costs and possibly better gas mileage, costing you less at the pump. If possible, pay cash on your next car and put the money you'd pay in interest in a high-interest online savings account to meet your savings goals faster.
Moving into cheaper housing can be trickier. The apartment you give up may only return your initial security deposit (if you're scrupulously clean), and moving costs can add up. But if you plan on staying put for a few years, those up-front costs could be absorbed by long-term savings. If you find a place for $200 less per month, how long would it take to make up those moving costs?
Step 3: Forget what other people think
Of course, if successful financial planning were just a matter of doing the math, everyone would be a Trump. Those first few weeks of settling into a perfect new car (and getting looks from other drivers) may have no real value -- but they feel good!
Spending choices are often influenced by emotion. The Onion once poked fun at a new car owner in an article titled, "New Hyundai Owner Sort Of Brags About it To Co-Workers." Forget keeping up with the Joneses; overcoming your concerns about what others think can be a key component to successful financial decision making.
Sometimes, the next steps to a successful savings strategy can be found in your own home or garage, so evaluate what you own to determine if voluntary downgrading will make a difference in your financial picture.