In the personal finance blogosphere, there is more saving advice than twerking in a Miley Cyrus video. However, please allow me to simplify things for you while throwing yet more advice out there. The usual approach to savings is undisciplined and cruel in the sense that ruthlessly cutting spending in all areas will render you as miserable as Billy Ray Cyrus watching his daughter twerk on national television. The point of saving is not simply to save money, but to be happier through increased security or an increase in available cash to spend in areas of our lives that make us happy. So while temporary spending freezes may help boost your annual savings rate, they will also boost your chances of losing your mind. Instead, try to save by being selective.
Save by Being Selective
Saving be being selective involves breaking your spending habits out into specific categories and choosing two or three categories to ruthlessly cut spending on. I mean go scorched-earth on them; make them feel like a small village in the way of Sherman’s March. Choose areas where there is the best combination of easy-win and meaningful savings to be had, and areas that are unlike each other (as much as possible). The reason behind choosing two or three areas is as simple as a Cyrus: if you fall off in one area, you can continue to make progress in the others. Any more than three areas however, and this becomes an exercise in across the board cutting. Choose your areas, be ruthless, set your goals and continue to spend normally everywhere else.
How to Save by Being Selective
Implementing this approach is as easy as writing a Miley Cyrus joke.
- Break your current spending out into broad categories, and then break the broad categories into smaller, more targeted categories. This is the first step in identifying specific areas of your spending habits to cut. After your targeted categories are created, take the time to organize them into unlike groups.
- Figure out how much you spend in these categories on an annual basis. Estimates are okay, but should be based on several months of history. I would sift through three months of spending history to establish a baseline, and then multiply by four. This will account for temporary lows and highs to create an average.
- Choose a savings goal. In establishing your goal, it is important to ensure that it will be attainable. For example, I spend a ridiculous amount of money on snowboarding. Cutting 100% or even 80% of that budget will make me miserable, and lower the chances of me succeeding more than an outlandish VMA performance featuring my flat ass. It would be better to cut 25-30%, which would yield meaningful savings while still allowing me to participate. Very important distinction: the goal of saving by being selective is not to meet a specific annual savings number, but to cut spending to an average annual level. For example, if you spend $1,000 on eating out annually and wish to cut that by 20%, your goal is to reach a spending level that supports $800 in eating out related expenses annually, not to spend $800 in an arbitrary timeframe. The goal is to change your habits permanently.
- Ease into your ultimate savings goal. If your goal is to cut 30% of your restaurant spending, set a three month timeline to ease you into your desired savings rate. For example, if you spend $1,200 annually on golf, at a desired savings rate of 25% your new annual goal is $900.
- Track your savings. Since you know your average annual spending (and thus monthly spending), you should be able to track your progress easily. You can do this through a month-end review, setting up a Mint.com account, or simply writing down all spending in the areas you set goals within.
From start to finish, these steps should take less than twenty minutes, about the same amount of time it takes a parent of a Hanna Montana fan to realize something is horribly wrong with the new Miley Cyrus album. This strategy is less intrusive on your life than an “across the board” savings approach, and because of its reduced psychological impact is more likely to yield permanent changes in spending habits.
What will you do with all the money you save?
 For example, choosing to cut the times you eat out and the amount you spend at the bars may be an easy win and yield meaningful savings, but if a friend visits from out of town or a birthday pops up it will be tough to cheat on one area while staying on track with the other. This is because eating out and spending at bars is too much alike. A better, unlike combination may be eating out and playing golf.
 That is what we in the business call a “meta-joke”.
Do you think that saving by being selective is a good way to reach your savings goals? If so, what would you cut?