Personal Finance Notebook: How to save money
Ablang
Readers tell of their disciplined habits, careful budgeting and
sensible spending that paid off
By Claudia Buck - cbuck at sacbee.com
Published 12:00 am PST Tuesday, December 25, 2007
Story appeared in BUSINESS section, Page D5
http://www.sacbee.com/103/story/590429.html
The season of giving - and spending - is an awfully hard time to be
thinking of saving, even though we know we should.
More than half of all Americans - 52 percent - say they can't afford
to save or are doing so inadequately, according to a recent national
survey by the Consumer Federation of America and Wachovia Bank.
Seeking enlightenment, we turned to some regional experts: Bee
readers. Asked to share suggestions, readers responded with
enthusiasm.
Some wrote lengthy, detailed descriptions. Others kept their
suggestions succinct. But all carried a common refrain: Think before
you spend. Then enjoy what you've got.
So, we're sharing the gift of financial well-being with a wealth of
money-saving ideas from some readers who have something to teach us
all.
FATHER KNOWS BEST
Jenny C. Cook
Auburn
Growing up on a Minnesota dairy farm in the 1920s, Jenny C. Cook
didn't share her father's passion for farming but did take to heart
his lifelong lessons on savings. After marrying and moving to
California, she earned a college degree and became a full-time mother
of two. Now 86, widowed but financially secure, she offered this
homespun wisdom:
When I left home just before WWII, my father gave me a piece of
advice: "Pay as little interest as possible, but collect as much as
you can." What he meant was keep your money in the bank where it can
draw interest. That's where money was considered safe back then.
When I was young, stocks were taboo. No one bought stocks because of
the (1929) market crash. But today, if I were starting over, I'd
invest in mutual funds.
Based on what my father taught me, here's my advice: "Live below your
income. You'll never feel poor."
To make that possible:
* Pay credit cards fully at the end of the month, so you don't incur
charges.
* Save beforehand for big items, like cars, appliances, etc., so you
don't acquire a lot of debt.
* Protect yourself with insurance against big catastrophes, whether
it's your home or your health. I also learned that from my dad, who
always carried tornado insurance, even when the other farmers thought
he was crazy. You have to protect yourself from the uncertainties of
life.
Then relax and live the best way possible on what you have to spend.
DEVISE A STRATEGY
Hal Young
Shingle Springs
As a struggling young schoolteacher raising seven kids in the 1970s,
Hal Young and his wife learned how to stretch a dollar. One of his
favorite strategies for staying on a disciplined budget was a system
of white envelopes, which were filled every two weeks with designated
amounts of cash for discretionary spending - the places "where your
spending can get away from you." Today, at 58, he owns a financial
advising company and still relies on some of the basic principles
learned in the lean years:
* Design a budget that matches your income and put it into writing. As
much as possible, track your expenses, including everything from
church tithing to entertainment.
* Budget for investment and savings, even if it's only a small amount
each month. Pay yourself first by having your investment deducted from
your paycheck and automatically put into a 401(k) or other retirement
investments.
* Set up a system where you set aside cash for discretionary spending.
For instance, every two weeks, fill individual envelopes with specific
cash amounts for groceries, gas, gifts and "fun" money. When the
envelope is empty, you're done spending.
* Allocate 50 percent of all windfalls to investment/savings. In other
words, if you get an unexpected refund or raise, put half into your
savings.
* Practice good health habits and physical fitness, which will save
you in health care costs. If your employer does not cover you for
health insurance, carry only catastrophic or a very high-deductible
plan to keep your premium costs low.
LIVE ROYALLY, CUT CORNERS
Karen Hess
Yuba City
After losing a $70,000-a-year job with Hewlett-Packard in Texas, Karen
Hess moved back home to Yuba City to save money. A self-described
"Queen of Cheap," Hess discovered that even without a permanent job,
she could still live royally while cutting corners.
While collecting unemployment benefits, it became imperative to pay
attention to my grocery budget. I turned to my local Grocery Outlet,
where I could buy gourmet items such as chicken sausages with sun-
dried tomatoes and specialty fish such as orange roughy and tilapia at
bargain prices.
Since the store's selection varies weekly, this approach requires
flexibility and some creativity in meal planning. When I was stumped
for recipes, I searched the Food Network's Web site for ideas. Using
this approach, I've had varied, delicious meals. I went to the regular
grocery store only for my produce.
I figure I've saved at least 30 percent off retail prices. The proof
is in the financial results. I was receiving about $1,480 in
unemployment benefits every month, and my rent is $735 a month. Not
once during that six-month period did I have to dip into savings to
meet my expenses.
My lesson learned: You can live just as well on less.
Among Hess' other tips:
* Buy used books on Amazon.com: She particularly looks for used books
sold by libraries, since she figures the money will buy more books.
* Sign up for daily digests from "Freecycle," "Freeshare" and
"Cheapcycle," which are online user groups that post items for sale or
giveaway. Her best find: a printer/scanner/fax/copier for $32.
* Share meals. For a treat, she and a friend split the tab for two-for-
one restaurant dinners, using coupons clipped from her daily
newspaper.
* Shop "Big Lots" and dollar stores for discounted household items,
especially electronics and office/school supplies. Hess said she
completely retrofitted the lighting in her two-bedroom apartment with
compact fluorescent bulbs for about $1 each.
LIVE ON HALF YOUR INCOME
Misty Miller
Sacramento
"To save money and accumulate wealth, live frugally and invest
heavily. The earlier you get started, the sooner you will reach your
goal."
That's the financial philosophy Misty Miller has followed since
getting her first job in a downtown law office more than 20 years ago.
Just as she did as a young CSUS college graduate, Miller brews her own
coffee, brown-bags her lunch, and walks or takes the bus to work every
day.
During most of the last two decades, she's managed to live on half of
her monthly pay and invest the other half. Today, at age 48, she's
just a few mortgage payments away from owning her Tahoe Park home free
and clear. Here's her path:
I had a strict grocery budget ($20 per week back then), ate breakfast
and dinner at home, and brown-bagged my lunch to work. I avoided
coffee shops, beauty salons and restaurants. Having a cat was my only
extravagance. I lived on one paycheck and used the other for my debts:
two student loans, a car payment and Weinstocks and Sears charge
cards.
Four years later, I made the final debt payment, which freed up one
paycheck per month for discretionary income. I decided to stick to
living on one paycheck and investing the other in blue-chip stocks. I
was 28 years old, and the stock market had crashed just a few months
earlier. Stocks were on sale, and I recognized a bargain. I invested
my money in a handful of mutual funds at Twentieth Century (now known
as American Century).
In 1990, I decided to buy a house. Although I qualified for a low-
income, first-time homebuyer loan with a reduced interest rate, the
monthly debt service on the mortgage gobbled up an entire paycheck
(principal, interest, taxes, insurance), plus I paid an extra $81 per
month toward principal to pay off the 30-year mortgage in 20 years.
My second paycheck paid for groceries and other living expenses, but I
continued to live frugally and was still able to invest some money in
mutual funds every month.
In 1993, I refinanced my mortgage at a much lower rate, to a 15-year
note with a final payment in 2008. I was fully invested in the stock
market throughout the 1990s bull market, and my money more than
quadrupled.
In 2000, I still had a lot of money in stocks. I lost money in the
(dot-com) crash but didn't sell anything during the bear market. Once
again, I recognized a bargain and added to my stock portfolio.
Fast forward to today, December 2007. I am still working full time (by
choice) and living on half my income, and investing the other half.
I've received raises over the years but spend only 50 percent of each
raise and invest the other half.
I've concluded that quitting the work force isn't all it's made out to
be. I think I'll stick around because I have a great job, and it makes
me happy to go to work.
For anyone who wants to invest: Wait for that next raise, then take
the extra money and invest it, while keeping your same standard of
living. Instead of buying a new car, a new house or a new 50-inch flat-
screen TV, buy stocks.
Think carefully before making decisions on where and how you will
live. For instance, if you are buying a house, remember that the
closer you live to work, the less it will cost in time and money
getting to work.
Doing all these things adds up to a lifestyle choice that some people
aren't willing or able to make. I made it easy on myself by avoiding
extravagances. My salary has increased over the years, so I have been
able to afford occasional vacations and a new car.
I don't buy anything unless I can pay cash. If I use my credit card, I
pay in full on the due date. With the exception of my mortgage, which
I'll pay off in April, I have no debt.
I am a rank-and-file state worker, not a highly paid executive. I
receive no extra money from my family or anyone else. I am self-made.
My investments are currently 60 percent in stocks and 40 percent in
cash. I am living comfortably in a "cozy" house close to work, and I
continue to ride public transit to my job.
My biggest extravagance: I now have two cats, instead of one.