Ten Unconventional Saving Money Tips
Please click here to view my 7-minute interview with ABC News concerning these ten unconventional but powerful saving money tips:
Rob's Interview with ABC News.
Unconventional Saving Money Tip One: Focus on getting over the $100,000 hump.
Saving your first $100,000 is hard. The trick is not letting the difficulty of the task become disheartening. The encouraging word from the world’s great savers is that the second $100,000 comes easier, and the third $100,000 easier still.
Why? Your income goes up as you age. You won’t always be earning an entry-level wage. On top of that, once you have $100,000 put away, you begin to notice that your investments are producing an income each year separate from the income you earn from the work you do. The
compounding returns phenomenon
is no longer a theory, but a personal reality. Saving makes sense.
You have to get over that $100,000 hump, though, to experience this phenomenon of saving getting easier over time. So don’t focus in the early years on saving all that you need to retire. Make it your goal just to get over the $100,000 hump. The long-term effect will be more positive than you would intuitively expect to see come from saving that relatively small (in comparison to the amount needed to finance retirement) amount.
Unconventional Saving Money Tip Two: Add back in the income tax when determining how much it costs you to buy things.
The sales tag on the leather jacket you want says that it costs $1,000. You know to add in the sales tax to determine the full price, which is perhaps 5% higher, or $1,050. But even that is not the true full price.
You can’t buy the leather jacket by earning $1,050. You need to have $1,050 in take-home pay to buy it, and that means that on a pre-income-tax basis, you need to earn a good bit more, perhaps $1,250.
It’s true, of course, that the money that goes to income tax is not yours to spend or save. Refraining from buying the leather jacket will not get it back for you. The other side of the story is that paying income tax hinders your effort to win financial freedom early in life as much as paying sales tax. Mentally adding back the income tax helps you appreciate how many hours of labor it takes to obtain a jacket with a nominal price tag of $1,000.
Unconventional Saving Money Tip Three: Use the Multiply-by-25 Rule to determine how much it takes to finance for life each of your spending categories.
Your ultimate saving goal is to become financially free--to be able to cover your costs of living without needing to work for money. If you can earn a 4 percent annual real return on your investments, you can determine the amount you need to save to create a fund covering that expense for life by multiplying the annual cost by 25. If you spend $40 per year on magazines, you need to save $1,000 to forever free yourself from needing to work to pay for magazines.
Please see the separate article at this site providing more detail on
the third of our saving money tips--the Multiply-by-25 Rule.
Unconventional Saving Money Tip Four: Translate dollars spent into hours worked to earn those dollars spent.
“I don’t care too much for money, money can’t buy me love,” Paul McCartney once observed. It’s an important point, but not a particularly helpful one to those seeking to win financial freedom early in life.
Money in itself means nothing. It’s little green pieces of paper. It is what money stands for that means something. When you go to work, you are trading the power to control what you do with the hours of your days to an employer in exchange for those little green pieces of paper. To save well, you need to keep in mind what it is that is at stake when you spend some of those little green pieces of paper. The real cost of buying stuff is losing power over what you do with your time.
If you earn $25 per hour, a $50 expense is really the loss of control over two hours of time. Money can’t buy you love in a direct sense, but not spending money can buy you back control of your time, and you can then use your time to do things you love.
Unconventional Saving Money Tip Five: Pursue short-term saving goals.
Why do you want to save money? If your answer is “So that I will be able to retire when I turn 65,” the odds are good that your saving efforts have been less than successful. If you are 35 today, you are trying to do something that will not produce a payoff for 30 years. Name one other thing you have ever done in life for which you did not expect to see a payoff for 30 years. It is unrealistic to expect such a long-term saving goal to motivate you to save much today.
Break the long-term saving project--to achieve complete financial freedom--into a series of smaller goals that you are far more likely to act on in the near future. Save
to pay off your mortgage.
If that too is too big a goal to get your head around, save to pay off one-third of your mortgage. Or save to have enough to start your own business in the event that someday that’s something you decide you want to do. Saving goals that work are saving goals that can be achieved within five years.
Unconventional Saving Money Tip Six: Pursue goals of intense concern to you and you alone.
Have you ever had the experience of enjoying a nice dinner out with your spouse or a good friend, commenting that you were too full to have dessert, and then found yourself wavering when the waiter came by with the dessert tray? If you love cheesecake, and you see that this place makes a good cheesecake, you want some, whether in theory it is a good idea for you to order some on this particular occasion or not.
You need to want to save the way you want to eat cheesecake (if you love cheesecake), or the way you want to eat a chocolate brownie (if you are a chocolate brownie lover), or the way you want to eat an apple cobbler (if you are an apple cobbler lover). A general desire to save is like a general desire for desert --
it's not compelling enough to inspire action.
I became a good saver when I began saving to free myself to pursue a career of writing non-fiction books. That was my cheesecake saving dream. It wouldn't work for you, but something will. The trick to becoming an effective saver is identifying that something, the saving goal that provides you with the motivation needed to get the job done.
People trying to sell you stuff always try to hit your emotional hot buttons with their sales pitches. They do this because it works. It works on the saving side too. To save well, you need to direct your money management energies to the pursuit of a goal that hits your emotional hot buttons.
Unconventional Saving Money Tip Seven: Don’t save in pursuit of a general desire to “get ahead” or to “have something to show for your years of work” or to “do the responsible thing.” Save in pursuit of a particular change that you want to make to enhance your enjoyment of life.
I was talking to a reporter today about what a worker should say when a collection is being taken to pay for a gift for the boss’s birthday and the worker does not want to make the contribution. I said that the worker needs to put forward a specific alternate use of the money to which he intends to direct it instead. For example, the worker might say that he is saving to have the money needed to travel to a family reunion scheduled to take place in three months.
Reporters often begin their newspaper and magazine articles with anecdotes. Why? Because the specifics of a story
possess an emotional pull
that abstractions do not. If you save “to be responsible,” you will not save. If you save because you want to attend a family reunion, and saving is the way to get there, you will.
Many people look askance at those who don’t want to make contributions to buy a gift for the boss’s birthday because the amount of money involved is small relative to what must be saved to finance a retirement. It is better to save for lots of little things over the course of a lifetime, just as you spend for lots of little things. To make saving matter, direct your mental energies to the small things that saving can do for you at all stages of life instead of the big dramatic thing (financing an old-age retirement) that it will do for you only once near the end of your active years.
Unconventional Saving Money Tip Eight: Stop thinking of saving as something that only misers do well.
I would rather be a spendthrift than a miser. It’s not great to be a spendthrift. But
it's downright sick to be a miser.
That’s my take.
So I was not able to save well so long as I thought of saving as a miserly thing to do. It was when I saw that it was through saving that I would become able to live my dreams that saving became a passion for me.
There’s nothing small or cheap or sick about effective saving. Not if you’re doing it right. Save for the right sorts of reasons--life-enhancing reasons--and you will no longer think of saving as miserly. And then you will make the change from someone who talks about saving someday to someone who really does pull it off in the here and now.
Unconventional Saving Money Tip Nine: Don’t pay yourself first. Instead, pay yourself last.
Many people have found that the only way that they have been able to save anything is by paying themselves first. For many, saving happens when it is automatic.
Automatic saving is not good enough for those seeking financial freedom early in life, however. Automatic saving can only go so far. The usual rule-of-thumb you hear is to aim to save 10 percent of your income. With pensions disappearing and Social Security in long-term trouble, saving 10 percent of your income is probably not going to allow you to realize your dream of a comfortable early retirement.
The “pay yourself first” maxim is rooted in the thought that saving is something to be endured, like your least favrorite vegetable, and that you should aim to direct as little mental energy to the money management project as possible. That’s mixed-up thinking. Done in the right spirit,
saving is fun.
Your financial freedom plan is your plan for coming to live the life you want to live. So you should enjoy each step you take to implement it.
Much spending is good. Much
spending enriches your life.
You should not be aiming to mindlessly cut spending anymore than you should be aiming to mindlessly spend. The goal should be to spend when spending offers the best value proposition and to save when saving does. To do that, you need to evaluate the value proposition offered by each act of spending and save only in those cases when saving offers more bang for the buck. You need to
pay yourself last
Unconventional Saving Money Tip Ten: Keep in mind that only a limited portion of your earnings is available for saving, and that the loss of any of those dollars to spending means giving up a significant percentage of your potential Freedom Dollars.
You are standing outside of a coffee shop considering a purchase of a $3 latte. You earn $50,000. So the amount at stake represents only a miniscule percentage of your pay. It doesn’t sound like that big a deal, does it?
Here’s the big deal. The $3 is a potential daily expense. If you get in the habit of spending $3 per day on coffee, the annual cost is more than $1,000. Let's say that you save 10 percent of the $50,000 you earn--that’s $5,000. By taking a pass on the coffee, you would increase your annual savings by 20 percent.
I’m not anti-spending. I love to spend. I’m not even against the idea of buying premium coffee. There are times when this little luxury offers a fantastic value proposition. Financial freedom offers a great value proposition too, though. The purpose of the Passion Saving approach to money management is to highlight to the middle-class worker making use of it both the pros and cons of spending so that he or she can obtain the greatest possible value from each dollar that he or she earns.
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