Why Saving Money is As Hard For You As It is For the Government

January 21, 2016

Did you have a New Year’s Resolution to save more money this year? How’s that going? If you’re struggling, you’re certainly not alone.

Why is it so hard to save money? It’s easy to blame things like your morning cup of Starbucks coffee (and those small expenses can add up over time) but no one wants to have to watch every penny they spend. In fact, I don’t even think those things are really the main culprit.

In a sense, the average family budget is a lot like the federal government’s in some ways. Everyone wants to focus on things like government waste, welfare fraud, and foreign aid but the reality is that those expenditures are a drop in the bucket of federal spending. Most of the money is spent on the big entitlement programs like Social Security, Medicare, and Medicaid. That’s what the real money is.

The problem is that Congress doesn’t actually spend that money each year. Instead, that spending is largely on auto-pilot based on rules that Congress previously created. That’s why they’re called “non-discretionary” programs.

We have big non-discretionary expenses in our personal lives too: housing, taxes, car payments, and student loans. These make up the bulk if not an outright majority of most people’s spending. The problem is that just like with the government’s entitlement programs, these expenses are largely set by key decisions that are hard to get out of once you make them.

If you can reduce those expenses, you can free up money that can be used for savings or anything else you want…like that cup of Starbucks coffee in the morning. That means more freedom for you to decide how your dollars are spent each day. Next week, I’ll write about some key financial decisions you make that can determine how much of that freedom you’ll have.