In this month’s edition of Money Magazine they interviewed 100 dedicated savers to learn their stories and find out the tactics they employ to save 35-60% of their income. All of these couples and individuals are well on their way to a very comfortable early retirement.
1. They set goals, and they make them specific.
Behavioral finance experts have found that earmarking accounts for particular goals can have a dramatic effect on savings rates. In a 2009 study, Amar Cheema of the University of Virginia and Dilip Soman of the University of Toronto found that labeling a college fund with the child’s name nearly doubled how much was saved. “When you know what you’re saving for, it’s close to your heart and you’ll feel regret if you stop,” says Cheema.
2. They live below their means
They purchase homes and cars based on what they need versus what they can afford.
3. They delay gratification
Super savers don’t make impulse buys and often save for months in order to pay cash.
4. They avoid debt
They pay cash, even on big ticket items like cars and houses avoiding thousands, even tens of thousands in interest.
5. They save on the everyday expenses
They are diligent in comparing prices, clipping coupons and scouring Craigslist for deals.
6. They have multiple streams of income.
The have two salaries, live on one and save the other. Or if they are a single income earner they have a side hustle to earn extra cash.
7. They track their spending
In a study of 50 undergraduates, Amar Cheema had students write down every expense for a month. All 50 cut their spending that month by an average of 14%. Six months later, 34 of them were still spending less.
8. They automate saving
They automatically fund 401K, Roth IRA, 529 and savings accounts. They don’t miss the money because they never see it.
I’m pleased that we are doing 7 of the 8 (we currently only have one income) and currently save 32% of our income. But my goal is to get to 50%.
How about you? Do you employ any of these strategies?
Secrets of Super Savers, Donna Rosato, Money, August 2010