How to Save Successfully
Common sense and good health make saving sustainable
Tightening the belt is no fun, especially for many Americans, who had been so accustomed to Hummers and Mac Mansions. Although the recent financial crisis and economical downturn have re-instilled some sense of thrift in our lives, judging from the speed of large flat screen TV’s flying off the shelves during the last Christmas shopping season, saving is still in many people’s back burner.
It’s true that the stock market is back; the economy is steadily improving; and the national savings rate has rebounded from a negative number in 2006 to almost six percent in October 2010, according to the U.S. Bureau of Economy Analysis. But compare to many other countries, including developing ones such as China, we still have a long way to go.
Saving is a life-long project; it could be a struggle for those who haven’t formed a good habit for it. But a few basic approaches and some common sense can make this a nearly painless process, and therefore keep you on the right track.
1. Live beneath your means . This can’t be obvious enough: You spend less than you make, and you have money to save! The problem is too many of us think they have the “need” to spend so much that they end up having only thirty dollars left at the end of the month. But is an iPhone really a “need”? Are weekend getaways just luxury or actual necessity? Of course you get different answers from a guy who gets a quarter-million-dollar bonus from his Wall Street firm than from a lady who flips burgers at a McDonald’s. One person's indulgence may be another's basic need. A brand new set of black Italian leather sofas looks great in the living room, but in terms of giving yourself a chance to save, we must determine what is really a “need” and not simply a “want”.
2. Set a budget. How do you make sure that you won’t run out of money before you next paycheck? You’ve got to know what you must pay for first: food, housing, utilities, basic clothing, transportation and medications, etc. Dig out those old bills (if you are fortunate enough to have kept them) for the past few months and see how much they cost you on average per month. These are your “needs” that you must take care of first. Now find out how much you have splurged on things like eating out, fancy clothes or that cruise trip to the Bahamas – those might well be your “wants”. Now you know where all the money has gone. Compare it with your regular payment checks for a month, and you have a very good idea whether the 61-inch LED TV that is supposed to be “on sale” will fit neatly under your means. Check out Websites like Mint.com, which can let you keep track of your worth and spending, and ultimately help you establish some kind of budget.
3. Make saving a habit. A good budget can help you successfully live beneath your means, which in turn can leave you with some free cash on hand. This is tempting. After all, the past couple of years had been tough; we haven’t been to a single skiing trip for three years; our Honda Accord is five years old and I heard the Porsche Cayenne is pretty good! Well, beware of the slippery slope – you’ve been down there before. Why not squirrel away a good part, if not all of the cash after paying off all the budgeted “needs”, putting it in a savings account for emergency money or investing it in an IRA for your retirement? Better yet, how about designate 10% of your take-home salary as savings to start the day? When there is less to spend, you’ll be more likely to make better choices with the money. Any ways you do it, once you establish a good habit you’ll sure see your savings cache grow.
4. Let saving be painless. Most in the U.S. are pretty much wired to spend whatever amount of money they have coming in, if not more, thanks to the exuberantly booming economy the past decades until its crash. It has become difficult for some to identify “needs”, and even painful for them to part with their “wants”. No wonder there are so many people crying that they are “barely making ends meet”. So I believe the best way to deal with this tendency to overspend is to limit the amount of money you have available for spending. Why not try having an allowable amount automatically deducted from your payroll to fund a 401(k) account? You can’t touch the money without penalties until retirement. Your employer is hiding it away for you; you won’t see it on your paycheck so you can’t spend that part of your salary. The whole process is running nearly silently on the background with little for you to worry about once you’ve set it up. And you are saving automatically and painlessly.
5. Stay Healthy. This does not appear to have much connection with saving money on the surface, and most personal financial experts fail to make it a point in their advice. But it’s easy to see how illness affects your wallet. You don’t need anyone to tell you that Health care costs have been rising forever. In fact, expenditures in the United States on health care surpassed $2.3 trillion in 2008, amounting to about $7,681 per resident. And this is just the average that has included the healthy. The daily pre-meal doses of insulin are both painful and costly, practically drilling holes in your pockets; while a major heart surgery, which often runs the tab in hundreds of thousand dollars, will easily wipe out the entire savings of most people. So eat right, exercise regularly and don’t skip your annual physicals anymore. Only when you are in good shape can you be the most productive and cost effective, and therefore on top of this savings game.
It’s never too early or too late to start saving. And it doesn’t have to painful, either. These basic approaches are simple to follow and can be done by anyone as long as you have the will to do it. Every single one of them alone can yield some result for you. Let them work together, and you bet you will enjoy significant gains in no time. So “now” is a good time to gain control of your life and start racking up some savings.