Warning: This step is only for the truly desperate.
Because America is one of the richest countries in the world, you'd think it would be a cinch for all of us to sock away money for a rainy day. Sadly, however, that's not the case.
Despite the fact that most people must fund their own retirement, the average American saves only 5.8% of their income. But while the masses might have trouble saving for retirement, that hasn't stopped thousands of individuals from doing a great job in their own right. In some cases, these individuals not only retire comfortably, but at a very young age.
While none of the three analysts below is officially retired, we asked them for tips they use to help them save more money.
Selena Maranjian: Delay your purchase.
A great way to end up with more money in your pocket, or, better still, in your savings account or retirement fund, is to rein in your spending. That's a lot easier said than done, though, especially in this era of super-easy spending. Our credit cards let us charge almost anything we'd like in an instant, and as if that wasn't easy enough, now our phones are able to buy us sneakers, sandwiches, and even plane tickets.
Still, if we can manage to employ a little self-discipline, we can spend a lot less without feeling terribly deprived. Necessities are not optional, of course, so go ahead and buy your food, shelter, utilities, insurance, and so on. But as you do so, occasionally ask yourself if you could spend less. A little shopping around might save you hundreds on insurance, for example, while swapping some pasta for steaks now and then can save a lot, too. When it comes to more discretionary purchases, even greater savings can be realized.
Try this trick: When you find yourself facing a product or service you really want to buy, aim to wait at least a day or two before doing so. Simply by doing that, you might find that you no longer want it so much.
Better still, ask yourself a series of questions about the purchase, such as:
"Can I really afford this?"
"Do I already have something similar?"
"Can I buy it next year instead?"
"In a year or five years, will I see it as having been a smart buy?"
"Can I find some discounts on it online or elsewhere?"
"Why do I really want to buy this?"
"Can I borrow a similar item from a friend?"
"Is there a less-expensive alternative?"
"Can I list a few reasons not to buy it?"
Brian Stoffel: Calculate hours worked for what you buy.
I started my career as a middle school teacher. It was my first job out of college, and with next to nothing in my bank account, I wanted to build up a safety net. Living in Washington, D.C., and wanting to go out to meet up with friends at night, that wasn't easy.
What I found helped the most was translating almost every purchase into the number of hours I had to work to afford something. This was front-end heavy—it requires a little initial work. But once that work was done, I would estimate that my discretionary spending was probably cut by 40%.
Here's how you do it, with my own numbers from back then as an example:
Figure out your after-tax pay on a yearly basis. For me, this was $36,000. Next divide this number by the number of hours you work in a year. For me, this was about 2,200 hours. So, I was earning about $16.36 per hour.
After I figured this out, I started viewing everything differently. Say I was thinking of taking a flight for spring break to visit a friend for $500. Before, I wouldn't have blinked. But after realizing that this was equivalent to 30 hours of work, I began second-guessing many of my purchases.
Jordan Wathen: Automate it.
By far, the easiest way to trick yourself into saving more money is to take your actions out of the equation by automating your savings. In the era of electronic everything, it's possible to automate everything from 401(k) contributions to bank transfers to your savings account.
In my own budget, I automatically have a predetermined percentage of my checking balance moved to a savings account every other week. I set this up with my bank online in a matter of seconds, but it's paid dividends for a long time now. As time goes on, my savings build, and because the money moves before I ever see it, I rarely have the urge to dip into my savings. This works just as well for 401(k) plans and IRAs.
The truth is, Americans as a whole largely spend what they earn. By automatically "hiding" some money away before you can spend it, you'll probably never even take notice of the fact you're spending less and saving more. Automation truly takes the pain out of budgeting.
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