We are well into the year of Financial Planning and working with clients to gather the information needed to have a more complete, and therefore more accurate, financial plan. One area where clients generally struggle is in determining the amount they spend each month. For many clients we’ve met this year, the answer is I don’t know what I spend, or I don’t track it. There’s nothing wrong with that answer, but it does tell us that clients may not have a firm grasp on their cash flow and may have room to save more. This is important if their financial plan isn’t quite adding up to the situation they hope to have today or in the future or if their spending is leading to stress.
A recent article by *T.RowePrice, How Spenders Can Save More: Key Insights From our Latest Study (January 2025), provides information about the behaviors of savers vs. spenders and how clients can make incremental changes if they would like to save more.
Let’s start with budgeting. T. Rowe Price asked for a set of survey respondents under age 50: Which of the following are reasons why you do not maintain a monthly budget? Respondents could select multiple reasons for not maintaining a budget.
They found both practical and emotional reasons why savers are more likely to maintain a budget. The data shows that savers find it less difficult to track their expenses, have the skills to develop a budget, and are less likely to feel bad tracking their expenses. Spenders found tracking expenses more difficult, dislike tracking their spending more, and feel like they don’t earn enough to maintain a budget. Note that the respondents’ median income was higher for savers, but not all savers reported above-average income. Twenty nine percent (29%) reported incomes under $75,000 (2022 median household income according to the Census Bureau)—meaning that one doesn’t necessarily need to earn a high income to be a saver.
Moving on to the use of credit cards. Savers carry lower credit card debt ($1,800 vs. $3,000) and are more likely to pay their credit card off each month (75% of savers pay off their credit card debt monthly vs. 30% of spenders). This is likely driven by the savings habits of each group. Spenders take a more passive approach to saving, with most saving what they can, when they can vs. savers who are most likely to save what’s left over each month after expenses.
See the figure below.
All savings strategies are used by both savers and spenders, just in a different order of preference.
All of this leads spenders to experience more financial stress than savers. Five percent of savers report having extreme financial stress with spenders indicating they experience extreme financial distress at four times that amount (20%).
If you identify as a spender more than a saver, there is hope. Do not fret. The following are some changes you can make that are relatively easy to implement and can make a big difference over the long term.
First, start by creating a budget. Tip: you don’t have to maintain a formal budget forever but putting it together and using it as a guide to see where your money is going and where you’d like to make change is invaluable. A budget is a spending plan that helps you set priorities, targets, and limits on where your money is being directed each month. Keep it simple and start with the basics, setting aside an hour each month to keep it updated and to learn about your spending and saving behaviors. Read our blog on budgeting to learn how to make a budget and tools available to support you.
Second, closely evaluate the use of credit cards. If you are carrying a balance, make it a priority to pay it off and lessen your dependence on the use of credit cards. Credit card interest rates tend to be very high, so carrying a balance and paying interest can lead to more financial stress. Sometimes credit card incentive programs encourage us to use cards more. We earn things like travel points, dollars back at the end of the year, and free things if we spend enough. Evaluate if you are really getting your money’s worth from these incentives, and if there are cheaper ways to accomplish the same thing.
Third, set your savings on autopilot. Choose a specific amount directly from your paycheck and/or checking account and invest in a savings vehicle each month. This may include a money market account, your 401(k) or other employer benefit plan, an IRA, etc. The study says that “automating your savings plan can save you time, help you avoid emotional investing, and ensure that you’re paying yourself first. The key is to automate the plan so the money is set aside before you can be tempted to spend it. Start with an amount you’re confident that you can stick to, then increase it. That way, you won’t have the deflating experience of needing to dip into savings soon after you start.”
*T. Rowe Price’s Retirement Savings and Spending Study is a nationally representative online survey of 401(k) plan participants and retirees. The survey has been fielded annually since 2014. The 2023 survey was conducted between July 24, 2023, and August 13, 2023. It included 3,041 401(k) participants, full-time or part-time workers who never retired, currently age 18 or older, and either contributing to a 401(k) plan or eligible to contribute with a balance of $1,000 or more. The survey also included 1,176 retirees who have retired with a Rollover IRA or left-in-plan 401(k) balance.
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