5 Ways To Save More Without Cutting Back

August 18, 2015
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Save more…that’s a pretty common theme when it comes to your financial future. Unfortunately, it’s true. Most Americans are simply not doing enough of it when it comes to their own financial independence and retirement savings. According to retirement statistics from the U.S. Census Bureau, Bankrate and Saperston Companies, the average savings balance of a 50 year old is less than $43,000. If that isn’t concerning enough, only 4% of people who start working at age 25 will have adequate savings for retirement by the age of 65.

Below is the chart of the Personal Saving Rate from the Federal Reserve Bank of St. Louis. What is the personal savings rate you ask? Well, it’s simply the percentage of income that is saved. The current savings rate stands at a paltry 4.8%. For many people, the immediate gratification of consumerism is the primary culprit for the low savings rate. For others, saving can be quite boring. Despite these threats, saving is necessary for almost all people and 4.8% is not enough.

FRED Savings Rate 2015

We are all for “having it all”. Yet, when “save more” becomes the topic of conversation it usually means “cut back”. And who really likes to “cut back”? Exactly. So instead of telling you how to cut back, let us illuminate you with 5 Ways to Save More Without Cutting Back. This means we are offering ways for you to save more money without having to change your current lifestyle.

  1. Minimize Taxes By Maximizing Retirement Account Savings: Most people are not contributing enough to their retirement accounts that offer up-front tax savings. Every dollar put into your retirement account saves you taxes this year. If you are in the highest tax brackets and have high state income taxes like those of us in CA, MN or NY, you could have marginal tax rates of 50%. That means for every $2 you put in your retirement account, you save $1 on taxes. For someone saving $20,000 per year and divided up 1/2 retirement and 1/2 non-retirement, you could be foregoing up to $5,000 in annual tax savings depending on your income. Utilizing these accounts to your advantage will not only allow you to save more with the same amount of money, but it can also provide spending money for other things in your life.
  2. Grow Your Income: Instead of cutting back, find ways to grow your income and use that income to increase your savings. No changes to your lifestyle are needed. Could you take your current skills and teach a course online? Is there a hobby that you can convert to income? Is there freelance work you can do and outsource your skills by signing up for a site like TaskRabbit? Could you drive for Uber?

    Or could you expand your skillset with further training or schooling and change jobs when higher paying opportunities arise. Even better if you are employed, negotiate a raise.  Don’t forget to make a case for your raise.  Have you outperformed based on the expectations of your role?  Will you agree to take on additional responsibilities?  Make sure you can demonstrate the additional value you add to the organization. Take your new found income and apply it to your savings goals.

  3. Bank Your Raises & Bonuses: Cost of living raises and annual bonuses are commonplace with many jobs. It is true that we may need to gradually increase our spending to maintain our lifestyle as the cost of certain items increases, but in many cases we do not need to spend as much as our income increased. Make it a common practice to save 50% of your after-tax raises and bonuses as you receive them. Not only will you be saving more, but you also have the ability to increase your lifestyle spending a fair amount as your career progresses.
  4. Spend Efficiently by Utilizing Savings Plans & Discounts Through Your Employer: We frequently find many people are not reading their employee benefit guidebooks thoroughly. The end result is that people are paying for things at full cost, when they could be receiving discounts or tax savings. Whether it’s child care or routine health care costs, a vast number of employers offer flex spending plans that provide for tax savings if they are utilized. These expenses are incurred either way, so why not spend in a way that will save you money.

    In addition, many employers have negotiated discounts on behalf of their employees.  Discounts can cover things like gym memberships, cell phone plans, computers, hotel stays, car rentals, mortgage fees, and many other expenses.  Ask your HR department what discounts are available to you so you can make the most of your financial life.

  5. Pay upfront instead of monthly: Many companies and service providers are willing to give you a discount if you pay for services upfront instead of monthly.  Insurance is a great example of a service with upfront payment discounts.  Pay for your auto and homeowner’s policy for the entire coverage period upfront, and you’ll often pay less than if you were to pay monthly for the same coverage. The same is true with many life and disability insurance policies.

    We have also had clients pay for their children’s private school up front instead of monthly, saving them 6% on significant sums of money.  Another client recently received a 25% discount on his children’s braces by negotiating with the orthodontist to pay up front. In both of these cases, the savings were in the thousands of dollars on money that was going to be spent either way. Start saving up for big expenses and eliminate your lifestyle on the installment plan. The cost savings can make your dollars go much further.

Your Action Plan:

Here’s what I want you to do next. Review the current direction of all of your savings. If you are not maxing out your retirement accounts but instead saving outside of them for the long-term, you are giving up your most valuable tax deduction and leaving significant money on the table. In addition, pull out your employee benefit guidebook and read the descriptions of the benefits thoroughly. Find the areas in which you are already spending but could be doing so more effectively through either discounts or tax savings. Lastly, review your monthly spending. Are there certain items that you could pay for annually that would provide meaningful discounts? Look specifically at your insurance policies and find out their payment terms. Identify one area from the above where you can get a greater return on your financial life, and save more without cutting back.