Turbocharge Your Savings

Tough economic times call for sound strategies to safeguard your financial future.

Wendy and Jim Longacre have always been good money managers. Since May, though, they’ve even ratcheted up their efforts. That’s because Wendy joined a personal finance class at church.

“I think since joining the class, I am far more mindful, particularly on getting better deals in making major purchases,” says Wendy, 30, a computer programmer for an international photography company.

The Fairmount, Indiana, couple live on two acres of land, and over the summer they analyzed whether to buy an expensive lawn mower attachment that mulches leaves. With insights gained from Wendy’s class, they weighed cost versus convenience. They decided not only to go ahead but were able to get a better deal because others in the class shared how they saved extra money on purchases.

“The preseason price was at a $150 discount,” Wendy says. “We asked if there were any extra bits of money we could squeeze out of the deal. Based on the wheel choice, we saved another $25.”

The Longacres and their classmates are using an important strategy for increasing how much you save: Associate with people with similar goals.

Belinda Fuchs, C.P.A., president of ownyourmoney.com, based in Boston, offers group-coaching services for that reason—so people can cheer each other on.

“Most people feel very alone about the struggles they are going through with their finances, no matter what their age or income bracket. Look at the 2007 report from the American Psychological Association: 73 percent of Americans name work and money as the greatest factors that affect their stress level,” she explains.

Longacre agrees the camaraderie and ongoing support from friends help sustain her commitment to save.

“It reminds me of the saying about ‘birds of a feather flock together’,” she says. “I think the class is comprised of enough like-minded people who seem to share similar interests and financial goals. Each person brings different ideas on reaching those goals. Some of those ideas I can use, some of them I have to tweak to apply to my own life….”

Studies prove Americans need all the help they can get to improve their savings rates.

The Employee Benefit Research Institute (EBRI) cites a 2004 government study that pegged the savings rate in the U.S. at only 1.4 percent, among the lowest in the developed world. More recent studies say the rate of savings is -1 to 0 percent. To be fair, some studies don’t include money saved in employer retirement accounts. And since the statistics are average savings rates, some people save significantly more.

The overall picture is sobering: In an EBRI annual Retirement Confidence Survey, 55 percent of workers said they believe they are behind schedule with planning and saving for retirement. And while almost 70 percent have begun, many have saved less than $25,000. In addition, 68 percent of today’s workers are skeptical that Social Security will be able to provide them benefits of at least equal to those of current retirees.

Pay Yourself First

A mistake many people make is trying to save money out of whatever is left over after the bills are paid. Unfortunately, people usually spend all the money each month. So experts say the most significant decision you can make to achieve a higher savings rate is to “pay yourself first.”

Jonni McCoy, author of Miserly Moms: Living on One Income in a Two Income Economy, advocates the concept and explains how it works.

“I recommend that people have an automatic withdrawal made from their paycheck each pay period so that they don’t see the money. This forces people to live within the rest that is deposited into the checking account. And most of us are perfectly able to live within what is left. We are just not used to it,” McCoy says.

Fuchs agrees and has a minimum target you should aim to save.

“People need to start by figuring out where their money is in reality being spent. Most people think they know, but when we detail out where they think it is going and where it is actually going, there is invariably quite a disconnect. Once they see this in black and white, then they need to take at least 10 percent off the top….”

Phyllis Vance, a high-school health and physical education teacher, for example, uses payroll deduction to pursue her aggressive savings goal of retiring at age 55.

“I had great role models for saving money because of my parents,” Vance says. “They didn’t buy anything they didn’t have the money for: neither do I. I’ve eaten a lot of peanut butter sandwiches, too.”

Vance loves to travel, funding her trips by working at extra events for the school. “Along with saving money, I have also been able to travel to 48 states and five other countries as well as ride my bike across the United States,” she says. “You can have fun along the way to reaching your goal.”

Sumner Sheets committed himself to a savings plan most people wouldn’t even attempt. As a result, he saved hundreds of thousands of dollars he later used to go on big-game hunts around the world. In fact, in 2005 he and officials from Huntington, Indiana, opened the Sheets Wildlife Museum, where more than 70 animals he bagged on his travels are on display.

“Everybody says to live on 90 percent and save 10 percent,” he says. “I tried to live on 10 percent and save 90 percent. My philosophy is pretty simple about money if you want to reach your goals: You spend what you have to spend and everything else, you don’t spend. It depends on how bad you want to do what you want to do.”

Sheets, 80, and his first wife, now deceased, wanted to travel the world and hunt. So they lived the first 15 years of their marriage in an old farmhouse without an indoor bathroom and drastically controlled vehicle expenses. In 1963 they built a house and paid $33,000 in cash.

“I knew if I had done what a lot of other people did, buy a home and then pay for it, I’d pay for it two or three times over because of the interest,” Sheets says.

These days Sheets still drives a 20-year-old car. Although his big-game hunts are over, he still enjoys fishing and says saving money is a choice worth making.

“You only live this one time, so you only have one shot at everything you want to do. You’re either going to do it or give up on doing it,” he says.

Never Too Late

Another important aspect of saving large sums of money is believing that you can.

“It is never too late to improve your financial situation,” money management coach Fuchs says. “Well into midlife, Ray Kroc created the franchise that would later become the McDonalds Corporation. If you start now to improve your money management practices and remain open to the opportunities, you may still achieve the results you want.

“Ray Kroc said about the year he purchased the McDonalds franchise: ‘I was 52 years old. I had diabetes and incipient arthritis. I had lost my gallbladder and most of my thyroid gland, but I was convinced that the best was ahead of me.’” Obviously it was.

“There are a lot of people who come to me in their 50s, haven’t saved much, and are worried that they’ll never be able to retire comfortably. They have an important choice to make: Either they can continue to feel bad about the choices they made in the past or they can choose to do something different and move forward. Too often their past mistakes hold them back; they’ve lost hope or are afraid to get help,” Fuchs adds.

Fortunately, if someone takes the first step toward saving, they often find many more ways to improve their situation.

The Longacres say their personal finance efforts continue to gain momentum. Wendy’s tracking her grocery store spending more closely, and the couple plans to see a financial advisor, among other goals.

“It’s almost like a hobby,” she says.

Now that’s a hobby to have: A true golden retirement.

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October 29, 2008