Excellent follow-up to an article written in the New York times on how to save money. Apparently, the suggestions the writer made were viewed as too draconian. They included:
- diverting 10 percent of your income to savings before anything else
- ignoring raises and putting them into savings,
- learning to cook,
- never borrow money to pay for a depreciating asset,
- find a partner and stay together
The end result, argued commenters, is that the writer’s suggestions were not practical — how can you live off only $40,000/year? The answer was to cognitively change your lifestyle from the consumerist one in which we are raised.
Stretching to save a little more yields a double dividend. You accumulate more assets and you lower the amount you will need in retirement because you will not have the habit of spending extravagantly to feel fulfilled. People who save a lot get used to a lower rate of consumption while working, so less money is needed in retirement.
So here is the challenge — if you are making $40,000/yr, that comes to about $561/week after taxes. If you divert 10% to savings, that leaves you just with $509/week. Can you live off that? If not, perhaps you need to reconsider if you are living above your means.
Try this: for a week, try to list everywhere you spend cash or use your credit card. That premium coffee habit is costing you $50/mo alone. Is the frill that important?
- Never pay a real estate agent a 6 percent commission.
- Buy used things, except maybe used tires.
- Get on the do-not-call list and other do-not-solicit lists so you can’t be tempted.
- Watch infomercials for their entertainment value only.
- Know what your credit reports say, but don’t pay for that knowledge: go to http://www.annualcreditreport.com to get them.
- Consolidate your cable, phone and Internet service to get the best deal.
- Resist the lunacy of buying premium products like $2,000-a-pound chocolates.
- Lose weight. Carrying extra pounds costs tens of thousands of dollars over a lifetime.
- Do not use your home as a piggy bank if home prices are flat or going down or if interest rates are rising.
- Enroll in a 401(k) at work immediately.
- Postpone buying high-tech products like PCs, digital cameras and high-definition TVs for as long as possible. And then buy after the selling season or buy older technology just as a new technology comes along.
- And, I’m sorry, I’m really serious about this last one: make your own coffee.