Here’s the Best Way to Save Even More
As the U.S. descends from its decades-long, debt-fueled, free-spending high, Americans are finding ways to save more money. In March, the average person saved 4.2% of disposable income, compared with just 0.2% a year earlier. Thanks to a deep recession, our buy-it-now-and-buy-it-big culture is moving into a lower gear, at least temporarily.
Downshifting on consumption is tough, when the intuitive way most people think about cutting back is to trim daily cash expenditures–especially the petty indulgences–on the fly. There’s a danger, though, in forcing yourself to save $4 a day by passing up Starbucks every morning. “If you feel like you’re acting poorer, you may not last,” says Mackey McNeill, a CPA and personal-financial specialist in Covington, Ky. “It’s like bingeing on a diet–you feel so deprived, you go shopping, and the next thing you know, you’ve got $1,000 on your credit card.”
How to win at the psychology of saving? A big part is understanding where the money goes. If you’re part of a typical American household, 12% of your spending is on food. That’s a big chunk, but smaller than the 18% that goes for transportation and the 34% that pays for housing. Cataloging expenses using software like Quicken or Mint.com or jotting them down, may be annoying, but it can be life-changing. “It gets people thinking when they realize they spend five times as much on their car as they do on recreation,” says Robert Manning, a consumer-finance research professor at the Rochester Institute of Technology.
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