I’m not sure if this qualifies as a joke or an anecdote, but a man and a woman are having a conversation.
The woman asks the man if he drinks every day, and the man admits that he does.
The woman asks how much each drink costs, and the man gives an estimate.
The woman asks how long the man has been drinking like this, and the man says about 30 years.
The woman then does a little math and figures out how much that adds up to. She says, “You know, if you had saved and invested that money, instead of buying all those drinks, you’d have enough money to buy a Ferrari.”
The man says, “I suppose so.” Then he asks if she drinks. She says that she doesn’t.
“So where’s your Ferrari?” asks the man.
It’s not much of a joke (or even much of an anecdote), and personally I’m concerned about the fictional man who drinks every day, but in its own way it makes an interesting point – namely, that not spending money isn’t the same thing as saving.
Here's a real life example of what I mean. I don’t smoke. I never have. Do you know how much money I’ve saved over the past 20 year by not smoking? Absolutely none. I have not saved any money by not smoking.
Also, I haven’t had cable television for at least five years. This has saved me exactly zero dollars over that time span.
My point is not that “cutting back” does nothing. It’s that cutting back, in and of itself, does not put money in your pocket or a savings account or a long-term investment plan. My point is that it’s not enough to change how you spend your money – you need to have a plan for where your money goes.
All too often we fall victim to the assumption that removing bad financial habits creates a sort of vacuum, into which good financial habits must inevitable appear. But while it’s certainly a good thing to put a halt to destructive or simply unnecessary habits (like the always popular Starbucks run every morning before work), unless you replace the bad habit with a good one, you haven’t really achieved anything. It’s great to not spend $4 every morning on coffee, but unless you’re putting $20 a week into a savings account (for example), that money will find another way to be spent.
Again, the idea isn't to skip cutting back. It's to make sure that you're taking the next step. When someone says, "I haven't gone out to eat in two months!" that's worthy of praise. But the follow-up question should be, "So what did you do with that money instead?" It isn't necessarily easy to deny yourself the things you like, but it is harder to take that sacrifice and pair it with a solid budget that pushes you towards a series of long-term goals.
Making positive changes and reducing spending are both great. Keep doing those. But, while you’re dropping unhealthy vices and cutting down on unnecessary spending, make sure you have a plan. Make sure you have goals that mean something to you. And, most importantly, make sure that the money you’ve “saved” is doing something better now. Otherwise, what have you really saved?