Building your saving is largely about not very sexy actions. The point where most people fail is just not saving. It isn’t really about learning some tricky secret.
You can find yourself with pile of money without saving; if you win the lottery or inherit a few million from your rich relative via some tax dodge scheme like generation skipping trusts or charitable remainder trusts.
But the rest of us just have to do a pretty simple thing: save money. Then, keep saving money and invest that money sensibly. The key is saving money. The next key is not taking foolish risks. Getting fantastic returns is exciting but is not likely and the focus should be on lowering risk until you have enough savings to take risks with a portion of the portfolio.
My favorite tips along these lines are:
- spend less than you make
- save some of every raise you get
- save 10-15% of income for retirement
- add to any retirement account with employer matching (where say they add $500 for every $1,000 you put into your 401(k)
Spending less than you make and building up your long term savings puts you in the strongest personal finance position. These things matter much more than making a huge salary or getting fantastic investing returns some year. Avoiding risky investments is wise, and sure making great returns helps a great deal, but really just saving and investing in a boring manner puts you in great shape in the long run. Many of those making huge salaries are in atrocious personal financial shape.
Another way you can boost savings is to do so when you pay off a monthly bill. So when I paid off my car loan I just kept saving the old payment. Then I was able to buy my new car with the cash I saved in advance when I was ready for a new car.
Countries that can still be travelled on the cheap
If you’re keen to surf or lie on the beach you’re all set to have an adventure for peanuts. As long as you steer clear of tourist-trap resorts, you’ll struggle to spend more than $23.50 a day. Nourish your inner cheapskate and buy souvenirs away from the tourist areas; head to the central market in Denpasar or Ubud’s Pasar Sukowati.
…
Eastern Europe used to be dirt cheap back in the good old days of the Cold War. Now that peace has broken out, costs are on the up. Poland, though, is still at the inexpensive end: a daily budget of $29 will easily get you around the country.
Poland is a nation that’s been run over so many times by invading forces that it’s become bulletproof. Now this EU member is on the rise, so get in quick before the prices go up for good. Rural towns are picturesque and cheap to visit; tiny towns like Krasnystaw in the Lubelskie region are a miser’s wonderland.
…
If you’re looking for a scuba-diving destination where you can put your entire budget into going under, Honduras is the place to be. With sleeping budgets as low as $12 a night and meals available for even less you can really stretch out the funds.
Sitting pretty next door to the Caribbean Sea, you’ll have plenty of time to count your pennies as you sun yourself on the golden beaches. The developers haven’t invaded quite yet, but you’d better get in quick, before the good old days slip into the past.
After snorkelling and kayaking around Roatan’s West Beach, splurge on a visit to the Unesco-listed Archaeological Park of Copan; entry is $18.
Related: Great Time for a Vacation – Travel guide books – Traveling To Avoid USA Health Care Costs – Travel Photo blog
Many people notice the ludicrous phone fees the phone companies charge. Some are indeed passed on taxes and fees imposed by government (though phone companies seem to love adding on fees and saying or implying they are government taxes when that is not completely clear). I got rid of my land line phone for Vonage, years ago. Vonage started to add on all sorts of fees so I dropped it and went with Ooma (free after the initial purchase $203 for me).
Ooma has now decided they need to change $12/year in fees (very reasonable I think). But they are not going to charge those, like me, that bought before this change (it has been 100% free for me for the last year). Great service (and a huge contrast to the attitude of typical phone companies looking to gouge everyone they can).
I also use and recommend Google Voice. They have to deal with another form of government approved fees for local phone companies. Some are using traffic pumping and high charges to gouge Google. I am glad Google is taking on these pumpers.
Related: Sex, conference calls, and outdated FCC rules – Telephone Savings – Paying for Over-spending – $8,000 Per Gallon Ink
How a Family Shed $106,000 in Debt
…
Several steps were key to making the plan work. Kandy and Russell eliminated discretionary spending. Kandy began buying generic food and frequenting thrift stores for clothing purchases. They stopped exchanging Christmas and birthday gifts with each other and their relatives.
Even with the drastic cutbacks, the Hildebrandts couldn’t cover the $2,000 they were sending to CCCS each month to be distributed to their creditors. At that time, the sum amounted to about half of Russell’s take-home pay. So Russell took on a second job cleaning a local grocery store several nights a week from midnight to 4:30 a.m. He would arrive home from his day job, eat dinner, catch a few hours of sleep and head to work. After his shift, he would go back home, sleep a few more hours and then get up for his day job.
…
By the fall of 2008, the Hildebrandts had one year to go on the payment plan. Russell even started daydreaming about a new home when he saw a three-bedroom rambler for sale in New Richmond. It had all that they were looking for, including a large yard and a separate bedroom for Joey. Russell let a real estate agent know that they liked the house, but added that the family would have to pay off their debts before taking on a mortgage.
Several months later the agent called and asked if the Hildebrandts would be interested in a rent-to-own agreement. The current owner of the house had some health concerns and was eager to move. The monthly rent would be $1,000, which included $200 to be escrowed for closing costs. They could manage it.
Earlier this year, the owner wanted to accelerate the sale process. In April, using the tax credit for first-time home buyers, the Hildebrandts were able to swing the purchase and pay off the remaining balances on their credit cards about six months ahead of schedule.
It is certainly a daunting task to dig out off such a crushing debt load. It is much easier to avoiding getting in that situation in the first place (how not to get into trouble with credit cards). It is easy to get yourself in trouble by borrowing money. In many cases all it takes to not get into that trouble is just don’t buy what you can’t pay for.
Read more
Ok, maybe moving to lower your cell phone bill would be a bit extreme. But the cost of cell phone service is almost 5 times as high in the USA as in Finland:
Mobile phone calls lowest in Finland, Netherlands and Sweden
Comparing prices on a medium-use basis for a package of 780 voice calls, 600 short texts (SMS), and eight multimedia (MMS) messages, the survey found monthly prices ranged from 11 to 53 US dollars across countries as of August 2008.
…
The OECD Communications Outlook says between 2006 and 2008 mobile phone call prices fell on average by 21% for low usage consumers, 28% for medium usage and by 32% for subscribers with the highest consumption patterns.
Related: Kiss Your Phone Bill Good-bye – money saving ideas – Investing dictionary
Here is an excellent article on how to invest in the stock market. I personally tweak this advice a bit but it is much better than most advice you get. Basically keep costs down (don’t pay large fees) and diversify. Lazy Portfolios seven-year winning streak by Paul Farrell
…
In short, even though we know that the average compensation of portfolio managers is often $400,000 to more than a $1 million, the hot-shot managers of these actively managed funds provided no value-added to their funds’ performance. Conclusion: Their investors would be better off investing in index funds.
…
Yes, the market was in negative territory the past few years, but still all eight Lazy Portfolios outperformed each of the six actively-managed funds.
…
Customize your own Lazy Portfolio following these six rules and you’ll win. More important, you’ll have lots of time left to enjoy what really counts, your family, friends, career, sports, hobbies, living.
…
2) Frugality, savings versus financial obesity. Tools like starting early, autopilot saving plans, dollar-cost averaging, frugal living and other tricks are familiar to long-term investors. Trust your frugality instincts — living below your means — it’s a trait common among America’s “millionaires next door.”
Related: Lazy Portfolio Results (April 2008) – Allocations Make A Big Difference – 12 stocks for 10 years – 401(k)s are a Great Way to Save for Retirement
One factor you must understand when evaluating economic data is that the data is far from straight forward. Even theoretically it is often confusing what something like “savings rate” should represent. And even if that were completely clear the ability to get data that accurately measures what is desired is often difficult if not impossible. Therefore most often there is plenty of question about economic conditions even when examining the best available data. Learning about these realities is important if you wish to be financially literate.
Bigger U.S. Savings Than Official Stats Suggest
A closer look, however, shows that Americans have tightened their belts more sharply than the numbers report. The reason? Official figures for personal spending include a lot of categories, such as Medicare outlays, that are not under the control of households. They also include items, such as education spending, that should be treated as investment in the future rather than current consumption.
After removing these spending categories from the data, let’s call what’s left “pocketbook” spending – the money that consumers actually lay out at retailers and other businesses. By this measure, Americans have cut consumption by $200 billion, or 3.1%, over the past year. This explains why the downturn has hit Main Street hard.
…
Finally, for technical reasons the BEA throws in some “spending” categories where no money actually changes hands. The biggest is “rent on owner-occupied housing,” the money that people supposedly pay themselves for living in their own homes. Despite the housing bust, this number rose by 2.6% over the past year, to $1.1 trillion.
…
A closer look at BEA numbers shows that Americans reduced spending by 3.1% in the past year, indicating that the savings rate has risen to 6.4%
He raises good issues to consider though I am not sure I agree 100% with his reasoning.
Related: The USA Should Reduce Personal and Government Debt – Financial Markets with Robert Shiller – Save Some of Each Raise – Over 500,000 Jobs Disappeared in November (2008)
…
A recent Pew poll found that 21% of Americans planned to grow their own vegetables, 16% had held a garage sale or sold things online and 10% had either taken in a friend or relative or moved in with one. Pundits are coining phrases such as “austerity chic” and “luxury shame”. Four-fifths of Americans told the BCG they would defer big purchases that can wait.
…
The beneficiaries of the new parsimony are, unsurprisingly, firms that offer low prices. The only two stocks on the Dow Jones Industrial Average that rose in 2008 were Wal-Mart and McDonald’s.
…
The hangover from this party will be long and painful. Households’ total outstanding borrowing fell in the fourth quarter of 2008, for the first time since the second world war. The personal-saving rate rose to 4.2% in the first quarter of 2009, from a nadir of minus 0.7% in 2005. “It is easy to see how consumer deleveraging could result in hundreds of billions of dollars-worth of forgone consumption in coming years,” say Martin Baily, Susan Lund and Charles Atkins of the McKinsey Global Institute.
American consumers are burdened by far too much consumer debt. And spending on non-essentials with debt is un-wise and creates personal risks and a weak (fundamentally) economy. It is true the current economic data will look good when people spend money they don’t have. But it just creates a huge burden for the future economy to cope with.
Related: USA Consumers Paying Down Debt – Too Much Personal Debt – $2,540,000,000,000 in USA Consumer Debt
All you need is a broadband internet connection and you can Kiss your phone bill good-bye:
…
Replacing your phone service is, of course, just the start for Ooma. In some ways, calling is the Trojan horse to get the box in your house and then figure out other services to sell, like enhanced network security or kid-safe Web surfing.
One Year Later: Ooma by Michael Arrington
I just ordered mine from Amazon for $203. I have been using Vonage for awhile and have been considering canceling it for awhile (and just using my cell phone) but I currently have a limited cell phone plan (because unlike so many people, I don’t feel a need to talk to someone every single minute of the day). I normally just use the cell phone if I am meeting someone or traveling. Otherwise, just leave a message, I don’t need to speak to you right now.
Related: Save Money on Printing – Frugality Plus – Save Money on Food
What Is Frugality? What Are The Best Examples?
* Money – less money on replacements and monthly utilities.
* Time – less time at hardware stores and climbing ladders.
* Earth – less burning of fossil fuels to generate electricity.
Very nice example. I do think including time in personal finance discussions makes sense. At times people seem to spend far too long on minimal savings (and/or buy things that break, don’t work well, require extra time to use…), in my opinion.
Related: New Graduates Should Live Frugally – Frugality Versus Better Returns – Too Much Stuff