Not long ago, I talked to a community group with an audience that ranged in age from 16 to 22, youngsters setting out on their own, in low-paying jobs, and anxious to figure out how to improve their lot in life.
I talked about the value of saving, the importance of managing credit correctly, and all of the other basics that would help those kids become savvy shoppers and spenders.
I challenged them to develop the discipline to save, and to have the patience to reap the rewards.
A short time later, I got an e-mail from one of the kids.
He was challenging me. He pointed out, correctly, that I had talked about the importance of scraping together little bits of money and letting them grow (or even cobbling together money to pay for big-ticket purchases instead of relying on credit).
“But you didn’t tell us how to do it,” said Jason, who is 19 and who never gave me his last name. “Give me a plan, a way to save more, a trick, something that works, and I’ll try it.”
So for Jason, and everyone else looking to stash more cash, here are a few notions to help you piece together some savings.
– Keep the change. This is not a reflection on spending or tipping. I mean, literally, keep the change.
Whenever you buy something, pay in paper money and round up to the next dollar. Pocket the change and don’t spend it.
So if your lunch costs $4.13, pay with a $5 bill and throw the 87 cents in change into the savings jar. This not only will help you save, it will affect how you view spending, because it makes everything cost at least a dollar. That daily candy bar is a buck (roughly 55 cents spent, 45 in change to be saved); the cup of coffee is two or three bucks.
Don’t dip into the change under any circumstances. When you have a small amount saved, say $20 or so, take it to the bank and plop it into a savings account. If your monthly change total gets you close to a round number, say $23, pony up the extra to round up and then send that money into a mutual fund.
(For a list of funds that will let you open an account with automatic monthly deposits of $50 or less, check out the Mutual Fund Education Alliance Web site at www.mfea.com.)
– Tax, fee and fine yourself. Keeping the change is a first step, because it artificially raises the cost of what you purchase yet increases your savings.
The next step is to tax yourself when you spend too much.
For example, put a $5 surcharge on every trip to the ATM. Each time you go to remove money, scrape off an extra $5 into a savings account. (You should be able to make the transfer electronically while at the machine, but beware bank fees that could be almost as big as the amount you pay yourself.)
Just as no one likes bank fees, this self-imposed charge will be an annoyance. Still, it increases your savings while also giving you the idea that fewer withdrawals is probably a good thing.
Other possibilities are fines imposed for “bad” behavior, so that if you buy a candy bar or a pack of cigarettes — neither of which is likely to improve your health — you put the same amount of money spent into savings.
This doubles the cost of your sins. As you see how quickly the amount paid to support your bad habits can add up, you may reconsider those vices entirely.
– Bank your windfalls. Most people spend their “good fortune” money, the dollars they get in a refund or rebate check, from coupon savings, or even from the “money fairy,” (that’s the sprite who put those dollars into that coat or pants you haven’t worn in six months).
Since these “found dollars” weren’t counted on, they become money that gets spent frivolously. Sock it away instead.
– Cut $1 per day from your spending. Making big lifestyle changes and curtailing spending sounds hard. Cutting your spending by $1 per day sounds easy.
You might brown-bag lunch, bring coffee from home, buy a 12-pack of soda to last a week instead of hitting a machine twice a day, or go to the matinee movie instead of the prime-time show.
Take your $1 daily savings and set it aside. At the end of the month, you have enough to fund that startup investment account or help pay off the bills.
Once you have seen that you can live without spending that $1 each day, challenge yourself to squeeze out another $1 per day.
– Forgo your next pay raise. Don’t tell the boss to keep the money, just arrange to have it pulled from your paycheck so you never see it. So long as you are making ends meet on your current salary, you can afford not to see most or all of that next raise.
This is a particularly good way to increase retirement savings. Done over a few years, it will quickly max out your allowed retirement savings without dramatically cutting your standard of living.
– Pay the bills, even when you don’t have any. If you have a car loan to pay or credit card debt to get rid of, those obligations need to be taken care of. But once you stop paying off those debts, keep setting aside the monthly payment account, to either use as an investment or give you the cushion so you won’t have to borrow the next time you need to make a big-ticket purchase.
– Look at how you can get the same pleasure at lower cost. Many people complain about how they “can’t afford to save” when the truth is that they can’t afford to spend.
Marc Eisenson, publisher of The Pocket Change Investor Newsletter, says people tend to fall into bad habits with their money because they don’t think decisions out.
“When it comes to major purchases, ask yourself why, if you didn’t need something yesterday, you must have it today,” says Eisenson. “And if you don’t need it today, at least put off the purchase until you can afford to pay cash for it and not put yourself in a hole.
“On small stuff,” he added, “think about the alternatives, the choices that don’t cost you as much money but that are just as enjoyable.”
Sometimes, those choices can be as easy as a walk in the park instead of a walk at the shopping mall, or a movie broadcast on television instead of on pay-per-view, or a home-cooked meal rather than restaurant food.
Any time you are talking about keeping an eye on saving and spending, the idea is not to rob yourself of all fun and enjoyment, it’s to maintain your level of happiness as much as possible while increasing the level of your bank account.
