Don't Just Spend Less -- Spend Smarter

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If January is the month of good intentions, then February is the month of letting your budget slide, "forgetting" to go to the gym, and eating an entire tub of cookie dough ice cream in one sitting. But it doesn't have to be this way. Success in your New Year's resolutions is possible with better strategies. Here at The Motley Fool, our mission is: Make the world smarter, happier, and richer. With that in mind, in this episode from the Motley Fool Answers podcast, hosts Alison Southwick and Robert Brokamp invite Chief Wellness Officer Sam Whiteside to help them deliver on that motto.

In this segment, they focus on the financial side of the picture, with advice on ways to track your budget better, how to spend more on the right things and less on what's not worth it, and how to budget your time, energy, and willpower for success.

A full transcript follows the video.

This video was recorded on Jan. 8, 2019.

Alison Southwick: Let's transition to talk about some money-related resolutions that people often have. One of the top five New Year's resolutions is, "I'm going to spend less." Again, very vague. Bro, what should people actually be saying and doing?

Robert Brokamp: I like to focus, first of all, on just spend smarter. Because you have to spend money and some things are well worth the money that you spend and in some of the recommendations I have you might end up spending more this year, but it's worth the investment.

First of all, I would start by looking where your money went in 2018. This is a good time of year to do it. Many banks and credit card companies will provide an end-of-the-year spending summary. If you use something like Mint or Personal Capital you can do that. You can even download your bank statements into a spreadsheet and sort it that way. But whichever, you want to see where your money is going.

One way I think about it is that spending can be categorized three ways. It either provides a long-term benefit, a short-term benefit, or no benefit. And as you look through things, you'll see things like, "Oh, I spent money on that, and I love it, and I'll continue to love it for years." It could be a shorter-term benefit. "I went out to eat. I went to a movie. I enjoyed it. It was nice. It's not going to change my life, but it was still worth that." And there are things that you're spending money on that you're getting no benefit from. Things you bought and you never used. Services you're paying for that you'll never use.

So you go through that and then try to identify the three biggest things that either provide no benefit or a short-term benefit. One thing we often talk about is eating out. Sometimes nothing beats a good meal, especially when you're out with your family. Sometimes you go out because you had nothing better to do and you leave and you're probably like, "Eh, I probably could have done something better with that money." I think that's one way to do it.

Another way to think of it is there's one way to reduce just about any expense by 8% over the next year, and that is give it up for a month. And I think you can give up anything for a month. It could be going out to eat. It could be your cable service. Most cable services will allow you suspend your service for 30 days. Or if you're not even eliminating it, you're finding a way to do it better. One thing I'm thinking of doing with my family is to figure out how we could lower our energy bill over the course of a month. Do a little research. What are some ways that we're using electricity that we don't necessarily need?

If you do that over the course of a year and just focus on a certain thing every month, I think you'll realize that you've saved some money and a considerable amount of money, probably over the course of a year. Also, you'll identify ways that you've been spending money that didn't add a whole lot of value.

I think this ties in a little bit to what you do, Sam, because you do the monthly challenges here and sometimes they're longer than a month. I assume it's similar in that there's a mentality that if I say I can't go out to eat, or I have to give up ice cream, it seems too long and too permanent. But you can do just about anything for a month.

Sam Whiteside: Absolutely. I found that not only because we move so quickly, here, and we're so project-based, that with any type of health and wellness challenge beyond six to eight weeks the participation drops off. About 70% of the way through people get bored. People are no longer interested. They've moved on to something else. They're focusing on something else. Life gets in the way.

But between three-and-four-week challenges I found is the real sweet spot, not only to start to nudge behavior change, but to make it a really lasting impact, whether you're starting to cognitively think about the decisions you're making, or it starts to actually become a habit.

Brokamp: Then the other part of many resolutions is not only to spend less but save more. And I would change that to invest more. Savings, first of all, is not very exciting. Savings usually means cash, and no one gets excited about cash. But here at The Motley Fool we're big investors, and I prefer to think of it as instead of spending that money on the thing you were going to buy, instead, spend that money on buying shares in the company that makes the product.

In the end, it's not a question of spend or save. It's a question of do you spend today on something you buy, consume, and maybe don't have a long-term value or benefit, or do you spend that money on an investment that allows you to either spend more in the future (because ideally that investment grew), or it allows you to spend money at a time of life when you value it (namely retirement)? You're able, then, to quit your job, have the financial independence, spend the money on vacations and all the other great stuff about being in your golden years.

I think that's a better way to think of it and the practical way to do that is just, right now, go to your 401(k) and increase the amount you contribute, or go to you IRA and have another $50, $100, $200 automatically debited from your bank account and invested. Make it as automatic as possible so you get that money to those accounts and you're less likely to spend it on something because it's sitting there in your bank account.

Southwick: We should have a monthly challenge. Let's do a monthly challenge!

Brokamp: That's a really good idea!

Southwick: Thanks, I have good ideas!

Brokamp: You do have good ideas.

Southwick: How do we make it health-related and then next week we can do a financial-related one? Finances in January can be a little wonky because of the holidays. Do you want to track our eating for a week?

Brokamp: I think that's a great idea!

Southwick: All right, that's it! We're going to do it!

Whiteside: Do we get to analyze that?

Brokamp: Sure.

Southwick: We're going to track on...

Whiteside: Aiiir!

Southwick: Maybe. Rick's like, "This is going to be awful radio." But let's track our eating for a week and then we'll come back at some point next month to talk about what we learned and then have a new monthly challenge. How's that sound?

Brokamp: That sounds great!

Southwick: All right, we're going to do it!

Brokamp: I was also thinking in terms of (and this applies to both health and wealth) why people don't follow through on their resolutions. I was thinking about why I wasn't able to follow through on past resolutions. I think it comes down to three things: time, energy, and willpower.

And when it comes to finances, if time is your issue, you just have to find a way to do it. And it can't be, "I'm going to find a half-hour at the end of the day after the kids are in bed," because then it's not going to happen. But you have to take a day off of work or on the weekend, clear everything out of the way, and get everything set up.

And with energy, I think time of day is important. In Dan Pink's latest book it had a lot of good research on this -- knowing when the right time of day to do certain things is. I'm going to try this year to make Wednesday mornings my money mornings, because if I save a lot of my financially related stuff and budget-related stuff to the end of the day, I just don't get to it, partially because of my job I've been focusing on money all day long. It's like the football players who say they play football and they don't watch Monday Night Football because they have that all day long. So I need to do it in the morning or it won't get done.

And I'm sure it's the same with exercise. There is some time in the day where you're going to go and exercise vs. other times where you're just not going to do it. You're too tired.

Whiteside: Absolutely. I keep thinking I need to get back to the gym that I have a membership with, but I don't go very often (not the hot yoga but the actual gym). But after I've taught two classes here, or I've had personal training appointments, and doing all the health and wellness stuff here, the last thing I really want to do is to go work out by myself in a gym. Sometimes it works, especially on the weekends. I can go to the gym because I'm not thinking health and wellness stuff all day, but you've got to figure out the sweet spot.

Brokamp: And then finally with the willpower. Again, automate things as much as possible. Make one big-time decision so you're not required to make multiple decisions. And there are various ways to do that. The automatic investments and things like that. There are more services out there like Acorns and Digit, which will round up your purchases and automatically save it. I personally don't have experience with those, but I'm going to try them. For listeners who have experience, feel free to email [email protected] because I'd love to know your experiences with these services.

If you do have trouble with spending, separate your accounts. Again, we'll use dining out as an example. Just determine how much can you eat out, get that cash at the beginning of the month or just have a separate little account with a debit card. Fill that each month with $100 or $200 and once that's gone you can't spend anymore. But if willpower is the issue, you have to put up some speed bumps or barricades around it to help you make better decisions.

Whiteside: Absolutely. I'm a big fan of if you're trying to "eat healthier" in the new year, make sure that you have healthy snacks wherever you go. I put bags of almonds in my 4Runner in the console. That way if I'm running from one job to another, or I'm running to a pool and I'm starving, I'm like, "Oh, yes, sweet, I've got snacks. I totally forgot I had snacks." Old Sam knew what Future Sam needed.

Brokamp: Fancy title, Sam.

Whiteside: Just make sure you're prepared. It's about being prepared and making sure you set yourself up for success, no matter what it is.

Brokamp: And the final thing I'll say in terms of spending smarter (and this is where you might end up spending more money), and that is if you need professional help, get professional help. In the case of money, it could be a fee-only financial planner. You pay them for a few hours of their time to analyze their situation, help you figure out where you can improve your budget, help you figure out where you should be saving your money. If you're having trouble making these decisions with your spouse, you can have this objective third party to help you make those decisions.

But there are also people called "daily money managers," and they will set you up on Mint or Quicken or anything like that if you don't know how to do it. They will analyze your budget. They will also pay your bills. They will do a lot of the nuts and bolts parts of money management and I don't think they get enough attention. You can look up the (American) Association of Daily Money Managers.

Southwick: I had no idea that was even a thing.

Brokamp: Yup. The first time I got set up on Quicken, it was my wife paid a guy who came and set all our accounts up and got us going.

Southwick: You're willing to admit that your wife had to call another man to help you financially?

Brokamp: She said he was working on Quicken. I don't know. He downloaded something. This was like years ago, and I said something like, "I want to get set up on Quicken, but I just haven't gotten to it." She did it as a birthday present.

Whiteside: That's a good birthday gift!

Southwick: Yes, that is a really good present!

Brokamp: So they will handle a lot of that stuff. It's the Association of Daily Money Managers. You put in your zip code and you'll find a daily money manager in your area. That said, many of them work remotely, so you don't even have to find someone in your area.

And then finally, if you are in good shape but your know someone (a relative, kids who are not in good shape), give the gift of good, solid financial advice by hiring a financial planner or daily money manager to help them get their act together.

And I assume it's the same, by the way, in terms of your situation, Sam, in hiring a professional trainer going to the gym. Whatever you need to do to get that professional help to get you over the hump to get you started.

Whiteside: Right, yes. To get you in that space where you feel comfortable going to the gym or doing whatever activity it is. Or staying on track; whatever it is. Whether it's a registered dietician, a certified nutritionist, a certified personal trainer, an exercise physiologist -- whatever area that you want to focus on, hire a professional for a short amount of time.

Southwick: Yes, you don't have to have them forever.

Whiteside: Make that initial investment. Learn everything you can. Stay in contact with them if you need them for another piece of advice...

Southwick: Peanuts.

Whiteside: Yes, a little quick thing. And start from there. Don't feel like you're at this alone.