Saving is a bit like dieting: Having goals is generally a good thing, but it can also backfire, if you overdo it.
Foregoing that triple-chocolate latte gets a little bit easier when you’re thinking about how good you’ll look in a swimsuit this summer without the extra pounds around your waistline.
And giving up your morning treat could be just as painless if you’re thinking of the beach vacations those dollars and cents will help you afford.
But start skipping lunch and you’ll likely find yourself diving into a bucket of fried chicken before too long.
Much the same holds for financial goals, according to Alex Benjamin, a former investment advisor and head of Vancouver-based lending company Lendful.
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“Goals are important,” he told Global News, but the key is to plan for the long term and prioritize your targets.
So think of it like a swimsuit challenge: In order to get that summer body, you’ll need to start early, be realistic, and pace yourself.
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Start early
If a thin silhouette is your thing, start working toward it as soon as your Caribbean getaway is marked on your calendar. The more time you give yourself, the better the results and the smaller the sacrifices.
When it comes to savings, one of the crucial steps is drawing up a game plan early in life, according to Benjamin.
“Get clear about what you long-term, medium-term and short-term goals are,” he said.
Think about whether or not you’d like to retire early and whether the bucket list includes a boat and a sports car or just growing your own produce in the backyard.
Talk to your parents or grandparents about how much they spend in retirement and do the basic math to calculate what it would take you to get there, said Benjamin.
If you want a more sophisticated forecast, sit down with a financial advisor, he added.
Then consider your mid-term financial targets, such as buying a home and funding your kids’ education.
Finally, look at your near-term goals.
Squirreling away for a vacation may suddenly look less than laudable when you realize you should have been maximizing your RRSP contributions instead.
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Be realistic
Having a healthy diet is good. Starving yourself is not — and it will likely lead to relapse.
Setting yourself unrealistic savings goals can have much the same effect.
“One of the things I come up against is when people in their 30s and 40s have set up goals previously and that did not work,” said Benjamin.
That can leave anyone feeling “disheartened” or “overwhelmed” and tempted to give up on saving entirely, he added.
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But a comprehensive financial plan can help you figure out what’s achievable and what’s not — keeping you on track and reducing stress levels, said Benjamin.
For example, while virtually anyone has to save for retirement, not everyone needs to be a homeowner.
“Maybe owning a house doesn’t have to be part of your plan, and you’d be better off investing your money elsewhere,” noted Benjamin.
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Pace yourself
And sometimes you’re going to need a breather.
You’re more likely to stick to a lunch of celery and crackers during the week if you can push the pause button and indulge in chips and salsa during the weekend.
With savings, too, “there has to be some flexibility,” said Benjamin.
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A young couple with a mortgage and two kids in childcare (which can often cost as much as a second mortgage) may need to reduce their savings rate for a few years.
As long as they are ready to pick up the pace later on or to postpone retirement, there’s nothing wrong with that, according Benjamin.
On the other hand, he added, fixating on channeling a certain amount into your savings account every month makes little sense if you’re racking up credit card debt at the same time.
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