Every Christmas, my fiance’s parents make us a big batch of chocolate peanut butter balls, and they’re as delicious as you’d imagine. So delicious, in fact, that the first year they made these for us, I ate the entire bag that night. I was miserable, not only because I’d gorged myself like a greedy maniac, but also because I wanted peanut butter balls the next day, but they were gone.

Last year, I vowed to learn my lesson. Instead of eating the entire bag right away, I saved them. Every single ball. I had zero that night, zero the next day. After a few days, I got so used to depriving myself, I forgot about the balls entirely, until I opened the fridge in late January and found them there, stale and sad. I’d wasted them. (I mean, don’t get me wrong, I still ate them, but they weren’t nearly as good).

The point here is: balance. The more I learn about money, the more I understand that it all comes back to balance. It’s important to save for the future, but at what point do you actually get to enjoy your money? It’s important to splurge every now and then, but at what point does splurging rob you of your future savings?

Somewhere in between those two extremes lies a balance–a compromise between gorging yourself and depriving yourself so much, you never get to enjoy your hard earned money (or peanut butter balls).

The good news is, it’s easy enough to find that balance. It just takes some planning. These steps should help you find your own compromise between spending and saving.   

Step 1: Get an Idea of Your Discretionary Income

To find a balance, we need to know how many peanut butter balls we’re working with.

Before anything else, get an idea of how much money you have to work with. After paying for basic living expenses and minimum debt payments, how much money do you have left over? This is your discretionary income. This is the number we’re going to use to decide how to save for your future and simultaneously enjoy the present.

Take a look at your monthly budget or bank statements, and add up all of your needs. These are things like:

  • Rent or mortgage
  • Health insurance
  • Auto insurance
  • Basic grocery spending
  • Fuel
  • Utility bills

We’re just looking at the basics here. Include everything that you absolutely can’t live without. Then, subtract that amount from your monthly income. If your monthly income exceeds your discretionary income, that’s another story, and you’ll have to learn how to create a basic budget.

Step 2: Calculate How Much You Need For the Future

Now it’s time to figure out how much of that discretionary income you’re going to save for the future. Namely, your retirement.

A lot of personal finance experts tell you to simply save as much as possible, don’t spend so much money, and leave it at that. Others say to simply save 10% of your income for retirement. This “one size fits all” advice is a decent starting point for most people, because most people don’t save nearly enough for retirement.

But personal finance isn’t about what everyone else is doing, so here’s a more thorough, realistic approach: figure out how much YOU’RE going to need for the future. In short–how much do you need for retirement?

That answer depends on when you plan to retire and how much you plan to spend. Personally, I love this Financial Freedom calculator designed by Rob Berger at Forbes. It lets you play around with some numbers to see how much you need to save now in order to make various retirement goals. For example, in the below screenshot, if you want to spend about 95% of what you’re making now in retirement, you’d have to save 5% of your income if you want to retire in 31 years, assuming an optimistic market return of 9%:

Save money for retirement

If that’s too many numbers for you, here are some simpler tools for figuring out how much you should save for retirement:

Bottom line, take fifteen minutes to answer some questions and come up with a nice, round number of how much you can (and should) realistically sock away for your future.

But What If I’m in Debt?

Debt always complicates things. Your debt should be a priority, simply because of the interest.

It’s easy to pay the minimum and surrender to carrying that debt for the next twenty years, but think about it this way: debt eats up your opportunity.debt eat
Your money can’t grow while you’re paying interest, and the value of your dollar just isn’t the same, because you’re basically paying to owe money. So the more you pay off, the better–you’ll free up more cash! In that way, you can even think of paying off debt as investing in your future or earning more money.

That said, you can pay off debt and save for the future at the same time. I’ve written an entire guide on how to do that here, but it comes down to this:

  1. Pay your minimum balances
  2. If your employer offers a 401(k) match, take it
  3. Tackle any high-interest, revolving debt (i.e. your credit cards)
  4. For other debts, like student loans, compare the interest rate to your expected savings rate. If your savings rate is higher, focus on saving. If your debt rate is higher, focus on debt. Or try a combo approach!
  5. Budget for both goals

I walk you through the whole process in this post, so if you’re in debt and struggling to find a balance between paying it off, saving for the future, and enjoying the present, I recommend putting it on your reading list.

Step 3: Set Up an Automatic Transfer

Once you know how much you want to save for retirement and put toward your debt goals, set up a system for automatic savings.

If you have a 401k at work, this is as simple as filling out some paperwork. Just tell your employer how much you want deducted from each paycheck. If you invest on your own through an Individual Retirement Account, you can do the same thing with your investment firm (Vanguard, Fidelity, or whomever it may be). Give them a call or browse online and see how to set up an automatic transfer. If saving for your future means paying off debt, set up an auto-pay with your credit card or loan servicers.  

Save money for retirement

Either way, the idea is: make saving automatic, so you have no choice but to save. Once your plan to save for the future is secured, it’s time to focus on the other side of the scale: enjoying your money NOW.

Step 4: Draft Your Medium-Term Goals

WHAT?! More goals? Don’t freak out. This is the fun part.

This is the part where you think about what you really, really want to do in life. For example, when I sat down and asked myself this question back in 2006, I realized I wanted two basic things:

  1. See the world
  2. Write for a living

Money could play a big role in making those two dreams a reality. So my first goal was to get out of debt so I could, as I said, free up some of my hard-earned money. After I got out of debt,  I came up with two money goals: Save $3,000 for a trip to Europe in 2008 and save $10,000 to switch careers and move to California in 2010.

Now, there are a lot of things I enjoy spending my money on. Booze. Shoes. Fancy food. But none of those things are as important as those two goals, so I realized that was the best use of my money: making my dreams happen. After setting up automatic savings for retirement, I focused most of my discretionary income on those goals (one at a time).

saving money while seizing the day

To come up with your own medium-term goals, think about the items on your bucket list, and figure out what you need to do to make them happen. Draft a clear, specific medium-term goal, then figure out how much you have to put toward that goal, considering the remainder of your discretionary income.

Money management isn’t about hoarding your money. It’s about using money as a tool, and what better way to use that tool than to seize the hell out of your bucket list? And here’s the best part: you don’t have to feel guilty about it, because you’re already saving for the future.

Once you know how much you want to save for your medium-term goals, set up an automatic savings transfer for that amount, too. BOOM–you’re now working toward your goals, and it’s all automatic.

Step 5: Give Yourself Some Breathing Room

Yes, it’s smart to use your money on the stuff you love most. But it would be unrealistic to tell you to NEVER spend money on anything else. You need some breathing room, and it’s okay to allow yourself the occasional indulgence, which in my case, is a fancy martini or a night at the movies.

In fact, it’s important to give yourself some play money, because of a little thing called willpower.
play money
As much as you try to deprive yourself of simple, everyday splurges, eventually, you WILL give in.When you do,it’s better to have a clear budget in place to contain your impulsiveness. The better you plan for your impulsive spending, the less that impulsiveness screws you over. Throw yourself a bone; set aside $50 or so for restaurants every month. Remember: we’re balancing the future with the present. As long as you’re saving for the future and your other savings goals, it’s okay to spend your money.

As a personal finance writer, I used to feel extra guilty any time I bought anything. And that’s not just because I have a guilty conscience–people love to judge and jump to conclusions about other people’s spending. (Just look at a couple of the comments here, when I simply used buying a PlayStation as an EXAMPLE of mental accounting). And that judgment goes back to the “one size fits all” approach: never spend money, just save everything. It’s short-sighted, simple, and assumes you can’t handle a balanced financial life. I think you can.

Again, if you’re saving enough for the future and saving to make your dreams a reality, who cares how you spend your money?

Step 6: Reevaluate

Of course, sometimes your spending deserves another look. I’m cool with how much I save for retirement every year, and I’m cool with my medium term goal, which is to save for a home.

Every now and then, though, I like to look at my spending and see if I can optimize it. For example, I recently decided to get a handle on my outrageous restaurant spending because it would be nice to save even more for that home down payment. That way, I can reach that goal a little faster, and I don’t think I’ll miss restaurants that much. If I do, I’ll readjust.

In short, your spending plan needs an occasional tweaking. Sometimes your habits change or you want to reach your goals faster. So every few months or so, reevaluate your current spending, savings goals, and make sure you’re still on track for your retirement or debt payoff.

Saving money and making money aren’t about, well, money. Money is not the goal, because that would be a really boring and ridiculous goal: hey, let me amass as much of this green paper as possible!

Saving and making money are about living the life you want. That means making sure you’re covered for the future, but with some proper planning, it can also mean using it to enjoy the life you want today and in the next few years. It all goes back to financial balance: that sweet compromise between seizing the day and saving for the future.

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Kristin writes and makes videos about money, the economy, travel, and more. You can find her stuff at Lifehacker, New York Magazine, the New York Times, and more. Learn more about her here.