Are You a Spender or a Saver?

Estimated reading time: 9 minutes

A few weeks ago I had been talking to my mother about how I was happy that the interest rate was increasing so much.

Baffled, she asked, “Why? Doesn’t that mean you have to pay more?”

Thinking about it for a moment, it clicked that she was thinking about interest on debt, whereas I had been talking about interest on my cash in the bank.

And it was in that moment that the inherent dichotomy between spenders and savers became obvious.

Spenders are focused on the outflow of money. They often use debt, and all too often don’t pay off that debt before interest accrues.

So to a spender, interest is a bad thing. They want interest to be as low as possible, because it’s just another outflow for them.

Savers, though, are focused on inflows. Cash tends to amass in their accounts, and so they are looking to get the highest interest possible. If they do use debt, they are more likely to pay it off as soon as possible to avoid the extra expense. Credit cards are seen as a way to gain extra rewards and benefits, rather than using them to buy things they can’t afford.

The Problem with Spender Consciousness

The problem with being a spender is that you end up spinning your wheels, if not actually moving backwards.

For instance, if some emergency arises and you cover it with a credit card, now you have that extra debt to pay off, plus the additional interest of holding that debt.

And if you were living paycheck-to-paycheck before, your situation will only be worsened by having that additional interest to pay every month until you can pay down the debt.

It can feel a bit like the myth of Sisyphus, cursed to push a boulder up a hill, only to have it roll back down again — no matter how hard you try, you can never seem to quite get ahead.

There are modern fintech companies out there that claim to help break this cycle — like one I found the other day called Dave, an app that offers up to $500 cash advances supposedly interest free (though of course they accept “tips”).

But this just pushes back the problem. if you get $500 today, you still have to pay it back when you get paid again, plus maybe a small fee if you chose to get the instant transfer option, which only leaves you even further behind.

There’s Only One Solution

Much as people might not want to hear it, there’s only one real solution to the problems of being a spender — learn how to save instead.

There are no shortcuts here. Of course you might think that by increasing your income, you would be better off, but that doesn’t tend to prove out.

Even the biggest earners report living paycheck-to-paycheck, including 30% of those making $250,000+.

What tends to happen is that even as you earn more, you experience what’s called lifestyle creep. Essentially your expenses increase right along with your income. You feel that you deserve to treat yourself — after all, you’re earning more now — but this simply serves to offset the additional money you’re earning.

A spender is a spender at every level of income, as the statistics demonstrate. If you want to get free of that cycle, the only solution is to learn how to hold on to your money.

It Doesn’t Have to Be a Painful Process

Let’s take a step back, though. I’m not saying you have to cancel your cable, sell your car and start biking everywhere. There are some who advocate for extreme frugality in the name of fiscal responsibility, but I’m not one of them.

Indeed, thanks to the law of attraction, I believe that extreme frugality can sometimes work against you: as you focus on how tight things are, more reasons to cut corners arise. Frugality ends up being your entire identity, instead of just a tool to create more security for yourself.

To get the best results, you want to make sure that your financial habits don’t leave you feeling too deprived, but also that you curtail any unsustainable spending.

So saving and spending aren’t a binary: it’s not either-or. But it’s all about where your primary focus is, and at the end of the day, whether your bank account is growing or shrinking over time.

To make that transition from being a spender to a saver — and to break the cycle of paycheck-to-paycheck living — you don’t have to take an all-or-nothing approach. Instead, it’s about making small shifts in behavior and mindset.

It All Starts here

The first thing you absolutely need to do is to make sure that you are spending less than you are earning.

If you are consistently spending more than you bring in, you are on a sinking ship. It’s only a matter of time until things start falling apart.

Again this isn’t about judging what you are spending on, merely cutting back on the amounts a bit. If you enjoy that Starbucks coffee regularly, that’s fine — just cut back to a few times a week instead of every day (just don’t tell Christine; she’s a bit of a coffee snob 😉).

But the top priority is to bring your spending in line with your income. Find little places to cut back that won’t be too painful. This will stop the immediate problem of the ship sinking: you’re at least not taking on any additional water.

Ideally, you’d stop using credit cards altogether right now, assuming that they were a big part of your spending habit before. There is nothing inherently wrong with credit cards — indeed I use them myself. But when you are trying to right the ship of your finances, it’s best to take a break from them until you get things straightened out.

Breakeven Isn’t Enough

Now you’re right about at breakeven. The crisis is over.

But breakeven is no place to stay, either. Sooner or later some emergency or unexpected bill comes up, and you’re right back to taking on debt again.

It is absolutely vital that you get to the point where you are spending less than you earn. I know, a lot of emphasis there but it’s so important.

It’s not enough to just break even. Your bank account should not be a sieve, where money flows out the moment it comes in.

A healthy bank account should see money accumulating over time, month after month after month. If you look back through your bank statements, you should have more money today than you did a year ago.

This is assuming one bank account, of course. In truth it doesn’t matter if your money is in one account or several — or in a mix of cash, stocks, and bonds. What matters is that if you were to track your net worth over time, the trend should be moving upward.

It’s About Priorities

So how do you cut back even more? This might be starting to feel a bit painful.

And I know that this is a transition. But one good way of looking at this is as a matter of priorities, not of “shoulds”.

That means, you’re not telling yourself you shouldn’t spend on this or that. You’re simply telling yourself that, for example, groceries have a higher priority than buying clothes. The money needs to fill higher priority items first, like rent, utilities, groceries, and so on, and if there’s enough left, it can then cover lower priority items, too.

If more money becomes available, it’s simple: it just goes towards the highest priority item that’s not yet been covered.

This takes the guilt entirely out of spending. You’re not looking at a matter of should or shouldn’t, you’re looking at a matter of higher or lower priority. It’s no longer an external authority telling you what you should spend: it’s you, deciding what’s most important to you.

Think of the Future

But if you only cover the priorities for things you’ll spend on this month, you’ll be right back at breakeven, not actually accumulating at all.

That’s why when you are making your list of priorities, you need to think of the future, too.

That’s where the discussion of true expenses comes in.

Do you own a car? It’s going to need maintenance eventually. Setting aside a bit every month towards that now will save you a lot of pain later when it’s needed.

Will you need a new computer within the next two years? That expense will be a lot more manageable if you start setting aside money for it now.

And of course, the most important of your future priorities: retirement. You’re quite simply not going to work until you die (let’s hope). One day, the income will dry up, but the expenses won’t. So retirement is one of the most important things you could start saving for starting today.

Reduce Liabilities And Build Assets

This will be the topic of at least one future post I’m sure, but another way of accumulating money is by reducing your liabilities and increasing your assets.

This is under the same category because they work similarly.

Liabilities are things like credit cards, loans, mortgages, etc. They drain your money month-after-month through interest. When you reduce your liabilities, you have more money by default because less of your money is going to paying interest.

Assets, on the other hand, build your money through positive interest, investment returns, and appreciation. As you build your assets, you will have more money because those assets will grow through appreciation, or provide a steady return.

When your assets generate money faster than your liabilities drain it away, your net worth will increase by default and you will officially be on the saver end of the spectrum.

Let Your Money Accumulate

This is a very basic introduction to making the transition from being a spender to a saver.

What you need to know now is that you first need to get to breakeven by cutting back your expenses and stop adding to your debt, then let your money start accumulating by cutting back even more and prioritize some of your cash to future goals.

If you can then spare some cash to reduce your liabilities and increase your assets, you’ll truly be on the path to financial freedom.

Is it easy? Not necessarily, especially if you’ve built up a strong habit of spending. But when you realize the importance of these steps, and that the norm should be a growing net worth, you’ll do what you need to do to make it happen.

Of course, the law of attraction can help. You can imagine it being as easy as you want it to be. None of this necessitates that it’s difficult, though it does necessitate changing your habits, which can take persistence.

But if you imagine an easy path to letting your money accumulate, you’ll find that the transition from spender to saver isn’t as hard as you thought it would be.

If you’d like help with this process, I’d love to help you gain control over your finances and create a budget that works for you.

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