Wednesday, August 17, 2011

Steady is the Way to Save

Financial returns have gone to hell. Bond yields are evaporating, money market returns are zero, and stocks have gone negative more than most politicians. We're in an investment desert, with the prospect of retirement a cruel mirage. If you manage to retire, you fear that you'll run out of money before you run out of time on this planet. That would leave you with only Social Security. But the political right will ambush Social Security and if you plant a garden to survive, the white tail deer swarming America's suburbs will eat your food supply before you can harvest it. You're screwed. Unless you find a way to boost your net worth.

The most reliable way to build up your net worth is to save steadily, week after week, month after month, year after year. Then, if you compound your earnings (assuming there are earnings to compound), you leverage your returns (see How can you achieve a steady flow of cash into your saving and investment accounts? Here are a few ideas.

Pay yourself first. Participate in any 401(k) or other employer-sponsored retirement program available to you. A portion of your paycheck will be automatically credited to your retirement account before you can spend it. You can also arrange with your bank to automatically transfer each month a fixed amount from your checking account to a saving account, IRA account, or mutual fund account. The key to saving is to live below your means. Paying yourself first is a great way of doing that.

Shop for Loss Leaders. Many stores offer extra low prices on select items to get you in the door, in the hope that you'll pay full freight for other items. Grocery stores are notorious for advertising loss leaders, and nailing you with high prices on staples. A way around this pricing scheme is to identify a cluster of grocery stores that are within a few miles of each other, so that travel costs aren't a big factor, and buy the loss leaders at each. You'll probably find that different stores often have different items on sale each week. It's hard for stores to win the loss leader game if they mark down the same items. So they frequently mark down different items to avoid competing directly against each other. If the stores are close to each other, you can drive to all of them easily and buy the bargains. When you frequently shop the same cluster of stores, you'll also learn how their regular prices differ. One store will usually have cheaper meat, another cheaper bread, a third cheaper milk. With this knowledge, you can save even more. While this strategy may not work well in rural areas and urban areas poorly served by the big supermarket chains, it does work for the majority of Americans who live in the suburbs.

Cheap gas. There are websites that report on gas prices in your neighborhood. None have complete information. But take advantage of the bargains you find. Since gas is an important monthly expense for most Americans, the savings add up.

Drive like a millionaire. Studies of the well-to-do report that the typical millionaire drives, not a luxury or sports car, but a standard sedan or mid-range SUV. Most millionaires became well-off because, among other things, they didn't burn up their income on big depreciating assets like expensive cars. Buy as much car as you need. A family of five or six obviously needs more vehicle than a single person. But don't confuse looking prosperous with being prosperous. Choose a Honda over an Acura, or a Ford over a Lincoln, and you'll look more like a typical millionaire.

Eavesdrop on your fellow passengers. We all know that mass transportation will usually be cheaper than driving, and it's kinder to the environment. Okay, strap hanging with a lot of other people trying not to look like sardines may seem like eating bologna with processed American cheese food on white. But view the glass as half full. Almost every day in public transportation, you can hear other people over-sharing too loudly on their cell phones. You learn what idiotic, messed up, contorted, perverse, and incredibly lunatic lives they have, and you will be amused, entertained, appalled, disgusted, and grateful. Grateful because however boring, unrewarding, difficult, and warped your life may seem, someone else has traveled farther down the road toward disaster than you. Don't worry about being an eavesdropper; they voluntarily, if perhaps unwittingly, made spectacles of themselves. Laugh while you bank your savings in commuting costs.

Veg out for free. If you're going to rot your brain sitting in front of a television, consider what you like to watch and find the cheapest way to get it. Check out resources on the Internet. A lot of cable shows can be accessed through your PC for free or a lot less than monthly cable charges. If you are a public television fan, many PBS stations post copies of shows on their websites that you can access later without charge if you miss the broadcast. Broadcast TV still does exist, and there are more channels now than ever. Of course, if you need to slobber on the sofa with shopping shows playing nonstop, cable may be your best option. But you'd be spending money in order to spend money. That isn't the way to get rich.

A pox on credit card interest. You won't enrich yourself by enriching banks. As interest rates for savers have fallen, interest charges for credit card customers have risen. Do you think someone might be getting shafted? If you carry over a monthly balance on your credit card, that someone can be found in the mirror.

Make Your Life Fit Your Closet Space. If you look at the typical American home (be it a single family house, a condo or an apartment), you'll notice that the closet space seems rather limited. Think about your friends and family--most or all of them have filled their closets and other storage space to 150% of capacity, and then stacked stuff up against walls and in other stray spaces. Most of America's housing stock was built in the 1940s, 1950s, 1960s and 1970s, with enough closet space for the needs of the times. It's only been in the last few decades that the warehouse-size walk-in closets found in newer suburbs have felt barely adequate. During the halcyon years of the 1950s and 1960s, when Americans thought of themselves as glowingly prosperous, people lived with a lot less than they have today and felt damn good about it. You can save a lot of money by making your life fit your closet space. Buy what you need. Buy what you want. But don't make a landfill of your closet space.

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