How to strike the right financial balance: Saving and spending wisely

When it comes to personal finance, it sometimes feels like there are just two goals: getting on the housing ladder and saving for a comfortable retirement.

And it’s no wonder there’s so much focus on those dual holy grails: building a downpayment for that first home and saving enough to fund your post-work years are two of life’s biggest financial challenges. But, in the race to reach those milestones, don’t forget there are other things you may want to plan for too.

Here’s what I mean by that.

I’m in my mid-40s (I refuse to say “late 40s”, yet). I’ve ticked the “first home” box and am now in my second (and, hopefully, last) family home. But retirement is still 20 years away, or further, and there’s a whole lot of life to be lived before then.

As a woman – and a self-employed one at that – I know I’m on the back foot with my retirement savings, and I really should be socking away as much as I possibly can. However, as I get older, I’m becoming increasingly aware of a need for financial guidance too, especially as ideas around work and retirement become more fluid.

One of my favorite TV shows at the moment is Mortimer and Whitehouse: Gone Fishing. I was rather late to the party on this one (the show is now in its sixth season) – disinterested, I suppose, because of the fishing end of things. But that’s really not what the show is about: it’s much more about the friendship of these two comedians and the conversations they have, spanning their careers, their health, and their well-being. It’s also about escaping the hustle of daily life, getting back to nature, and reveling in the quiet. It’s a fantastic advertisement for retirement, actually, and it often inspires my husband and I to mull over the trips we’d like to take and the merits of buying a camper van of our own.

But perhaps the biggest thing I take from the show is the need to savor the now and make the most of what you have. The pair aren’t afraid to talk about death, aging, and their health – Bob Mortimer, himself, married his longtime partner less than an hour before undergoing triple heart bypass surgery in 2015.

And, look, I’m not about to say, “Don’t worry about your retirement planning – you might not make it that long”. But I am frequently reminded that life is short and that our retirement plans shouldn’t come at the expense of the years that proceed it. That’s why I’m not a massive fan of the whole FIRE movement (Financial Independence, Retire Early). I’m just leary of the notion of sucking the life out of your 20s, 30s, and 40s, for a future that can’t be known.

The fact is, it’s no mean feat, trying to strike the right balance between saving enough for the retirement you want and enjoying the life you have now. But here are five things I’m keeping in mind as I look for that perfect middle ground.

1. Spend money on the things that matter to you.

Spending sometimes feels like a rude word in the world of financial planning. Spare cash should be saved or invested, not spent. And sure, ordering dinner to be delivered when I have a fridge full of food isn’t a savvy use of cash, but that doesn’t mean I have to dismiss the value of spending on the things that matter to me.

For example, my appetite for spending on house improvements is waning and I’ve long hated spending a penny more than necessary on cars. What I do want is enough money for summer vacations, day trips, and evenings out. Cosmetic home improvements can wait. As for the car, if I have my way, we’ll drive it until its very last mile.

2. Cut your spending on things that don’t.

While I do advocate for spending on things that nourish you and give you something to look forward to, I’m also a big believer that spending shouldn’t be at the expense of your financial future. Going to the theater shouldn’t take the place of paying into a retirement account.

And I think it’s valuable to shrink your spending on the things that don’t enrich your life in the same way. Here I’m thinking about taking the time to get a better deal on things like your mortgage, your car and home insurance, and even your phone, TV, and broadband.

There’s a lot to be said for going through your bank statements, in search of expenses that aren’t necessary or benefiting you – streaming services you no longer use, subscriptions you’ve forgotten about, free trials you meant to cancel, and so on.

3. Think ahead.

I tend to take life as it comes, but I’m increasingly recognising the benefit of thinking more specifically about things I’d like to do and things I might need to do in the next few years. For example, taking a special trip before the kids leave home, making a fundamental lifestyle change, or being able to step in when parents need a little more help.

And, since it’s never too soon to start thinking about how you want to retire, I’ve been doing that too. I’m not opposed to the idea of working into retirement and winding down gradually – so long as I’m healthy enough and still have enough time for regular trips in that (still hypothetical) camper van.

4) Get your savings in order.

It’s important to think about your savings strategy and where you’re putting spare cash, spreading it across short-, medium-, and long-term goals.

Set aside money for emergencies and known expenses in an easy-to-access account – rising interest rates mean you can earn a pretty decent rate on your money, for the time being, at least.

And if you’ve got some cash that isn’t already devoted to a specific goal and you don’t expect to need it within the next five years or so, you might want to consider dropping it in a tax-efficient account. A Roth IRA in the US can fit the bill here, or a stocks and shares individual savings account (ISA) in the UK. They’ll help your post-tax money work a bit harder. They can be a great way to add flexibility to your financial planning in your pre-retirement years, whether you use it to help a child buy a home or to celebrate an empty nest with the holiday you’ve always wanted.

Money in those accounts can also be a boon when you do eventually retire – providing a helpful complement to other income. That’s because money taken from Roth IRAs or ISAs is tax-free – unlike a 401(k) or UK pension, which, with tax relief up front, are subject to tax on the withdrawal.

5. Think about protection.

If you want to enjoy the life you’ve got and plan for the future, it makes sense that you should protect it too.

To make sure your savings and future financial plans aren’t derailed by an illness – or a death – you might want to check out products such as life insurance, income protection, and critical illness coverage.