By Geoff Williams
This year, it’s going to be different. At the end of 2017, you really will have some money stashed away for your emergency fund, your retirement, your kid’s college education and that elusive worldwide vacation.
But to do that, you’re going to need to be an extreme saver. And if you’re really going to pull it off this time, you need to act fast and start some new habits. Because as January continues to unfold, you risk forgetting about your vow to save money. You’ll be too distracted by the car tire that went flat. You’ll be thinking about your kid’s D in math. You’ll be consumed by what’s on the news or whatever those Real Housewives are doing on TV.
Seriously, if you’re going to really do this, here’s what everyone in the know says you need to do. Now.
Treat your savings funds like any other bill. You wouldn’t fall behind on your mortgage, would you? (Well, it happens, but you wouldn’t do it lightly or on purpose.)
You need that same mentality with your savings, says Andy Yadro, a financial advisor with Googins Advisors in Madison, Wisconsin.
“Treat savings like any other line-item expense on your budget,” he advises. “If you view savings the same way as your electric bill, for example, it no longer becomes something you can do, but something you must do. The best savers have this mentality and it absolutely works.”
“Have a set amount each pay period automatically transfer into a savings or investment account that doesn’t have a debit card attached to it,” Yadro says. “That helps keep the money out of sight and prevents easy access so it can continue to grow untouched.”
Ryan Frailich agrees. Frailich, a financial coach and planner who owns Deliberate Finances LLC, a financial planning firm in New Orleans, says extreme savers actually don’t spend much time thinking about money.
“They automate their savings to separate bank accounts or investment accounts, and rarely look at it. They have a plan and set it up to be self-fulfilling, rather than having to constantly make those hard choices to put money aside for later.”
Embrace delayed gratification. This is crucial, says Brian Raleigh, a financial advisor and owner of Raleigh Wealth Solutions in Raleigh, North Carolina.
People who are extreme savers find it far more important to save money than to drive a new car or wear expensive clothes, Raleigh says.
“Extreme savers don’t care what others think of them. They don’t care about material things. For many of them, it’s painful to spend money,” he says, adding: “I have clients with millions of dollars saved, but they drive a car with more than 200,000 miles on it. … You would think some of them make $30,000 a year.”
Along those lines, Frailich says that extreme savers fight lifestyle inflation: “Every raise is saved, every bonus is saved, and they’re driving the same car they were five years ago when they made $25,000 less per year. Maintaining their current spending despite new influxes of income is the key to building savings rapidly.”
Marry well. Sure, it helps to marry somebody well off, but no, no, no, that’s not what we mean. Daniel Packer, a Los Angeles resident who writes a personal finance blog, SweatingTheBigStuff.com, says it helps when your spouse feels the same way about saving as you do. If one person is carefree or reckless when it comes to spending money, it can make it harder on the saver in the household.
“We live a comfortable lifestyle but don’t spend on frivolous purchases that we’ll forget about in a week,” Packer says.
Don’t do debt. No surprises here. Too much debt, like revolving credit card debt, weighs you down and keeps you from having extra money to put into savings.
Raleigh says his extreme saver clients typically have one thing in common: If they can’t pay cash, they won’t buy it.
“Many of my clients who save like this don’t want to owe anybody. They don’t want debt, and they won’t pay interest,” he says.
Start saving small amounts. You don’t become an extreme saver overnight. For most people, it’s risky and impractical. After all, if you start shoveling too much of your paycheck into savings and retirement, you might find yourself continually broke – and then perhaps reaching for the credit cards.
“If you’re not setting any money aside, start by saving 3 percent of every paycheck,” Raleigh suggests. “It’s such a small amount that you probably won’t even notice. Do that for a year and then increase that by 1 percent every year. In less than 10 years, you’ll be saving more than 10 percent of every paycheck.”
And eventually, maybe you’ll be like Damon Gonzalez, a financial planner in Plano, Texas. He and his wife live off of 35 percent of their income, though let’s be fair here. He’s a financial planner, and his wife works at an accounting firm. If your household is being funded by a teacher’s salary and that of a construction worker, you probably won’t be able to get by off of 35 percent of your income. That, and Gonzalez and his wife don’t have children, which makes it easier to live on less.
Still, you can’t argue with Gonzalez’s methods of saving money. He says he drove his last car until it had 240,000 miles on it, and even then, he struggled to get rid of it, because he was sure it had several more useful years left. After he got rid of it, he could have opted for a Lexus or Mercedes but bought a $25,000 Toyota Rav4. He says he hates to waste money and tries not to spend more, even if he’s making more.
Says Gonzalez: “The secret to savings is knowing you have enough and stopping the voice in your head that thinks adding more will make you happy.”