These three savings fundamentals from finance expert Stacy Johnson, author of Life or Debt 2010, will help you bounce back from slick advertising, new-stuff hype, and name- brand glam to save money.
Keeping more of the money that comes into your life involves a lot more than just reading hundreds of useful savings tidbits. Each savings idea is like a little recipe to cook up money, but in order to follow a recipe, it helps to know how to cook first. So let’s start by learning some savings fundamentals.
Savings fundamental number one: The best way to save money is not to spend it. And the best way not to spend money is to not buy things you don’t really want or really need. That sounds stupid, but think about it. Many, if not most, of the things you spend money on now probably fall into that category. We live in a world where our “needs” are largely a figment of someone else’s imagination, and that someone else works in an executive suite or on Madison Avenue. In other words, what you think of as your reality may not be so real! There are fundamental physical truths, like gravity, that we know are real because we’ve experienced them and they apply to everyone. But we were all raised in a false societal reality created for other people’s profit that has nothing to do with what’s actually real. It’s imaginary, and it’s probably in direct conflict with a different, better reality that you can create by simply deciding what makes you happy and fulfilled. Consider the basics: food, clothing, shelter, and transportation.
Who says that preprocessed, prepackaged, and “convenient” food is what you “need”? Madison Avenue invented this part of your current reality. Why? Simple. To convince you to exchange your life for some company’s bottom line. The grocery store is packed with examples. Here’s one: Ever heard of Breakfast Mates? I did a story on this Kellogg product about 10 years ago. Breakfast Mates is typical of convenience packaging ploys. It combines a bowl of cereal, milk, and a spoon in silly little single-serving containers. (What a godsend for that working mom on the run!) When I did the story, Breakfast Mates cost $1.39 per serving. At that time, pouring your own cereal into your own bowl, adding your own milk, and eating it with your own spoon cost about 29 cents per serving (assuming you’re using the same name-brand cereal). So in this case the cost of convenience was $1.10 per serving. If you’ve got two kids eating breakfast every day, that’s $66 a month. Compounded over 20 years at 10 percent, that’s more than $50,000. So that’s how much our working mom is voluntarily transferring from her family to Kellogg’s bottom line for the “convenience” of not having to reach for a bowl, spoon, and milk. This is just one tiny example of the way your reality is being shaped dozens of times every day when it comes to food. We all know intuitively that homemade meals made with fresh ingredients are not only better for us, they’re much cheaper. And despite what you may claim, you probably have the time at some point in your hectic week to make such meals and freeze them for convenience. I work at least 60 hours a week and I do that. And isn’t that a healthier and less expensive reality? Of course. We just have to ignore Madison Avenue long enough to deprogram ourselves so we can see it.
Now let’s consider clothing. The reality that Madison Avenue thinks you should live in is one where fashions change constantly and your ability to appear attractive is directly related to your willingness to follow trends. But that’s make-believe. The purpose of clothing is to hide your body while allowing you to be comfortable. Admittedly, it’s also true that a secondary purpose of clothing, at least in our society, is ornamental. But who says that used clothing won’t satisfy these purposes? Who says that you need something that costs $200 when something that costs $50 will do the trick?
Who says that something that’s well cared for and 10 years old isn’t good enough? These aren’t laws of nature. This is a reality created by a group of people who are thinking of their wealth, not yours. In my reality, which was built upon my own experiences, people who are rich often wear old clothes. I certainly do. And believe it or not, I’m still able to attract the opposite sex and even appear regularly on TV. In my reality, people who follow the latest fashion trends appear silly and self-absorbed.
Now let’s consider shelter. What’s wrong with living in a house that meets your needs for space and comfort? The reality that we’re supposed to buy into is that we “need” to spend at least 25 percent of our gross monthly income on a house that’s more a status symbol than a place to stay warm and dry. As a result, we find some people facing foreclosure while others live in giant mansions with rooms they’ve never visited. And those people are often unhappy, because the status that comes with such a house in no way enhances their self-esteem. It does, however, significantly enhance their debt burden. Who says that a modest house that provides shelter isn’t enough? This isn’t a law of nature like gravity. It’s invented by people who build houses, sell houses, or lend money for houses. When I was a stockbroker, some of the wealthiest clients I visited lived in modest homes, often much more modest than the homes of the heavily indebted salespeople who catered to them. In my reality, a nice house is cool, but I try not to buy, clean, furnish, or air-condition more rooms than I actually need.
Last example: transportation. I’m 53 years old, and despite the fact that I’ve made good money for at least 20 years, I have yet to own a new car. Why would I? In my reality it makes no sense to ever buy something, especially something expensive, that is guaranteed to plunge 10 to 20 percent in value the second I drive it off the lot. Especially when there are so many better alternatives, like the Mercedes I drive that cost $75,000 new but that I bought when it was 6 years old for $20,000. It more than satisfies my need for status, comfort, safety, and style. Although I have to admit that in my world, even this car is a major indulgence. My last car, also a Mercedes, cost $5,000.
Many of my friends, on the other hand, apparently live in a reality quite different from mine. They never own a car. Instead, they lease new cars that in my opinion aren’t nearly as big, nice, or comfortable as my used one yet cost $10,000 to $20,000 more. And at the end of their lease four years later, they’ve laid out about as much cash as I did (including a lot of interest) but own nothing. Why on earth would they do that? Maybe TV commercials convinced them that a new car would help them feel better about themselves. Good luck with that.
What I’m trying to say here is that the single best way to save money is to develop a new reality and a new attitude to go with it. Decide what really makes you happy, what you’re willing to trade your life for. These things differ for everyone because everyone’s idea of happiness and fulfillment is unique. But if you’re about to pull out your wallet for anything that isn’t really important to your happiness, put your wallet away! That will not only save you a ton of cash, it will put you in control of your own life.
Savings fundamental number two is a lot more basic: When it comes to buying long-lasting stuff, don’t buy anything new that you can buy used. We often forget that many of the things we go to the store to buy are available for much less at yard sales, in the classifieds, or at consignment shops. This not only saves you a boatload of money, it also helps save the planet. I’m not suggesting you buy only used things; sometimes finding what you want used is more hassle than it’s worth, or what you really want isn’t available used. But there are plenty of things that you have right now that you could have bought used and had a lot less debt or more savings as a result. And these days buying used is easier, thanks to web sources like craigslist and eBay.
Here’s savings fundamental number three: When it comes to buying consumable stuff (food, toiletries, cleaning supplies, etc.), don’t buy name brands when there are generic substitutes available. Suppose you have a party, and someone peeks into your medicine cabinet and finds all generic items. Would you be embarrassed? Most of us, at least if we’re being honest, would probably admit to at least a tinge of embarrassment. But why would you be ashamed of being smart? Because we’ve been conditioned by Madison Avenue to believe that name brands are better than generic brands. Now, sometimes name brands are better than generic brands. But many times they’re not, and we should be happy (in fact, proud) to use generics in those situations. Doing anything else is simply donating money to people who already have plenty. That’s not smart, that’s stupid.
ABOUT THE AUTHOR
Stacy W. Johnson, author of Life or Debt 2010 (Copyright © 2009 by Stacy Johnson), is a CPA and former stockbroker who for nearly 20 years has been the producer and host of the popular syndicated personal finance new series Money Talks. He is the recipient of multiple Emmy awards. Check out his website at moneytalksnews.com.
MORE ARTICLES BY THE AUTHOR
- 5 Steps to Redefining and Achieving Financial Freedom
- 33 No-Nonsense Ways to Save Money by Saving Energy
- How Much Did Your Stuff Really Cost You? An Eye-Opening 7-Step Exercise
LEARN MORE
- Read Chapter 1 of Life or Debt 2010: A New Path to Financial Freedom
- Watch the video: The author on his program for helping you get out of debt and achieve financial freedom
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