Balancing financial demands with personal goals is an ongoing challenge that takes time, effort and trial and error. Young professionals with minimal savings, starter salaries and major first-time lifestyle costs are particularly prone to financial pitfalls, like racking up credit card debt and wasting savings.
Financial planner Shannon McLay, founder of The Financial Gym, recently helped a 24-year-old couple navigate their way through the delicate dance of wants, needs and means, helping them avoid potentially costly mistakes as they started their financial journey together. See how McLay helped this couple find ways to cut spending and max out savings.
Seeking Expert Advice for Big Financial Goals
McLay met this couple when they were eager to move to another state with a higher cost of living. Although the two were looking to pay for a Masters degree, they were overwhelmed with how to approach the cumulative cost of their near-term goals.
Already homeowners with good savings habits in place, they had successfully mastered many financial basics on their own. But with the fiscal realities of their life goals, the couple turned to McLay for help in tackling existing and forthcoming expenses.
Getting Aggressive With Savings
After a thorough analysis of their finances, McLay challenged the couple to set aside more money for savings. Rather than rely on financing to fund an education and relocation, McLay emphasized the value of saving aggressively in advance. Doing so would help the couple avoid borrowing a larger sum of money that would get more expensive with interest.
To help the couple stash away additional savings, McLay helped them identify expenses they could forgo. For example, they initially had plans to update a few areas of their home, but because they weren’t planning on staying there for more than another two or three years, McLay suggested using those earmarked funds to help pay for school instead. Investing in home updates probably wouldn’t make for quite as good return on investment, she reasoned.
McLay also gave the couple a goal of saving $1,000 per month, an amount she noted was a bit of a stretch given their situation. But with a high price tag on their goals, McLay wanted to challenge them to save as much as possible.
Overcoming a Savings Setback
When McLay followed up with the duo during their first quarter review, they hadn’t achieved their savings targets — in fact, they had even less cash than when they’d originally sought professional financial help. The culprit was an overseas trip that was paid for but prompted a lot of additional spending.
In reviewing their cash flow over the course of that quarter, McLay uncovered two additional pitfalls — too many Amazon orders and grocery overspending. To make up for the setback, the couple decided to ban themselves from Amazon in Q2.
Learn: How to Save $100 in a Week
McLay also helped the couple adopt strategies to curb splurging on unnecessary expenses. One suggestion she made was to categorize purchases as either a life or death expense. That is, unless the purchase was absolutely necessary — like rent or food — then it wasn’t a priority and should be avoided. It was an extreme strategy to take, but it was necessary to help the couple meet aggressive savings goals.
McLay also presented another challenge for the couple: to clear out their pantry of non-perishables. They were tasked with brainstorming meals they could cheaply make. This challenge helped the two stay within a weekly grocery budget. Prepared with personalized strategies to overcome their spending weaknesses and pitfalls, the couple left with a renewed commitment to their savings.
Exceeding Savings Goals
Not long after, McLay checked in for a Q2 review to find that the couple had not only saved the $3,000 they were aiming for that quarter, they’d also saved an additional $3,500, making up for their first quarter backslide. They’d also successfully completed their pantry and grocery challenge, and they even had fun tackling it.
As for Amazon, they went from making 22 purchases in the first quarter to just two in the second. In short, the couple had resounding success. Now the young couple is well on their way to achieving what were once overwhelming goals. With tangible savings targets and smarter spending strategies, the two will reap the benefits of their success for years to come.
“The important thing,” McLay said, “is that we created a plan together that was unique to their situation. Personal finance is personal and generic financial planning advice might work for some people, but others react better when they are not only part of creating the solution, but (when) they know that the solution is tailored to their particular situation.”