Starting The Year Right - A Savings Tuneup
Welcome to Saving Money with Andrew!
This is the second issue of Starting The Year Right, a series on setting savings goals for the year. This week we’ll focus on maximizing how much we can save.
Over the past decade, the US savings rate has hovered around 7%. What does this mean? For every dollar of “disposable personal income” (incomes minus taxes), the average American spends $0.93 and saves $0.07.
The median US household earns about $68,000 (half earn more, half less). If we assume that household pays about $15,000 in taxes, that household spends about $49,000 per year and saves about $4,000.
It’s not easy to cut expenses. Some of the most ridiculous financial advice I’ve seen (it has become cliche) is to “cut the morning latte” to save more. And I don’t know about you, but most of what we spend goes to housing, childcare, food and clothing. There’s not a whole lot of room to save on those things.
Moreover, that daily latte might be a wonderful part of your morning routine and well worth $4. Before cutting out the inexpensive purchases that bring you joy, or tackling major expense categories like housing and childcare, start by looking for easy ways to save that don’t decrease the quality of your life.
So, how can you save more if you feel stretched as it is?
First, harness the 93% you spend to increase the 7% you can save. Essentially, anything you can do to save a few percent on your overall spending (the 93%) will let you increase your savings (the 7%) substantially.
For example:
Make sure you are using a credit card that is providing you with the best possible rewards. In our case, this is a combination of the Amazon Prime Rewards Visa Signature (5% at Amazon, which accounts for 12% of our annual spending) and the Citi Double Cash Card (2% cash back) for everything else.[1]
Use a credit card for anything where a credit card is accepted (and there isn’t a credit card fee). When I see a friend or family member reach into their wallet to pay cash at a store that accepts credit cards, I shed a silent tear for the rewards not earned. Of course, this applies only as long as you are able to pay your credit card bill in full each month and don’t carry a balance.
And you’d be surprised at some unexpected places that accept credit cards - in our case, our daycare (a major chain) urges parents to pay via bank account, but allows payment via credit card with no additional fee. Given that daycare is our second largest expense, this is a large benefit for us.
Finally, make sure that you are earning cashback rebates at any online retailer that participates in a cash rebate program, which I discuss in more detail here. The extra click takes about 2 seconds but typically saves an average of 3% per purchase.
In our case, we are able to put almost all of our expenses (other than rent) on our credit card, and use cashback shopping for most of our online shopping, with the notable exception of Amazon and a few other retailers who generally don’t participate in cashback programs. This saves us over $1000 per year, which can then go straight into savings.
Already doing all of the above? Consider a few of these tips, each of which takes under an hour or two of work:
Carefully review your credit card statement and cancel recurring subscriptions you aren’t using
Investigate promotional rates for the recurring subscriptions you do keep. Sometimes this involves negotiation, and sometimes this just involves changing over to a more affordable plan, such as switching from two individual Spotify subscriptions to Spotify Duo.
Consider switching your smartphone to an MVNO or lower cost carrier
And now…Andrew’s pick of the week:
Whether it’s the pandemic around us or the disturbing events of last week, there is no shortage of sad news these days. That’s why my wife and I usually prefer to watch funny or relaxing shows together. Most recently, we watched My Octopus Teacher, a 90-minute documentary about a South African man and his friendship with an octopus. The documentary features incredible visuals (much of it feels like watching a beautiful screensaver on your computer screen, for those of us old enough to remember those), and some gripping scenes in the life of a common octopus. Enjoy!
I hope this has been helpful. If you liked it, please share it on social media! Also, please send me your feedback, requests, and success stories.
[1] As discussed in prior posts, none of these links are affiliate links—I’m not compensated for anything you sign up for from this post.