You really could save more
by Don Kuehn
WHEN WALL STREET closed the books on 2012, every domestic stock market index showed significant gains for the year. The Standard & Poor’s 500, the leading proxy for the general economy, was up 13.4 percent; the technology-laden NASDAQ composite topped the list at 15.9 percent; the Russell 2000 small-company index gained 14.6 percent; and the benchmark Dow rose 7.3 percent. After the start of the new year, there was another good run-up in the markets.
All of this in spite of the lingering recession, crises in Europe, an uncertain election last fall, the “fiscal cliff” debate, a stubborn unemployment picture and the day-to-day calamities fabricated by the 24-hour newsmongers.
Over the years I have urged you (in every way I could think of) to get involved in no-load, low-cost mutual funds. But you may be among those who say, “Sure … easy for you to say, but where am I going to get the money to do that?”
I recently came across an article on Yahoo! Finance about how to save money, a topic that usually catches my eye. It mentioned things like buying electronic accessories online, rather than paying full price, or not using dry cleaners when other cleaning options would be as effective. Programmable thermostats that haven’t been programmed made the list as did missing out on multipolicy discounts by buying insurance policies from different companies.
Small potatoes. Here are a few other ways to save:
Cigarettes and alcohol seem to be on many people’s saving agendas (there may be associated savings on health insurance and medical costs, too), as are cell phone contracts with too-large data plans and premium cable television channels. Rent movies rather than going to the theater or buying the DVD (or be patient and see it on TV), keep your tires fully inflated, mow your own lawn, turn off the lights in empty rooms, and turn down the thermostat on the water heater.
Save on stamps by paying regular bills online. And you can sign up online at sites like Groupon or LivingSocial to save on restaurants, entertainment and other services.
My mother used to love getting her hair done regularly at the beauty school. It was inexpensive, the students were closely monitored, and she felt like a queen when she left. By the way, there are also similar places where you can get your pet groomed.
Refill water bottles, make your own coffee, pack your lunch, compare unit pricing on competing brands at the grocery store, stock up when favorite items go on sale and only shop the perimeter aisles of the market for the most nutritious items. And always shop with a list of items you need to avoid impulse purchases.
But the biggies are saving your next salary increase before you get used to having it, paying off your mortgage early, paying cash for your next car, saving until you can pay cash for most purchases rather than charging them on a credit card. Avoid accumulating balances on your cards, pay more than the minimum payment and never let yourself get dinged with late or overdraft fees. Watch those ATM fees.
If you haven’t refinanced your mortgage in the past three years, what the heck are you waiting for? Interest rates have never been this low, and when they start going up, they’ll never be this low again. You could save hundreds of dollars each month just by doing a re-fi. There may be closing costs involved, but start with your current lender and see if it will waive the fees to keep your business.
If you must borrow, shop around for the lowest rate on credit. Try the credit union or online banks. Never—I repeat, never— use payday loans or title loans to meet short-term needs. They are a spiraling vortex of inflated interest rates. For long-term loans like mortgages or car loans, check the local newspaper; be sure you put pencil to paper and decide between low rates and discounted prices.
Speaking of cars, if yours is more than 10 years old you can probably cancel your collision coverage because it would cost more to repair the car than it’s worth. Keep personal injury and property damage coverage.
Use generic drugs and fill prescriptions at the pharmacy with the lowest prices in your area, or for maintenance drugs, buy several months’ worth at a time by mail. Ah … oh yeah, remember that health club membership you swore you’d use—use it or lose it. The same goes for that Flexible Spending Account (FSA) you have at work: if you aren’t using all of it by year’s end, lower the amount deducted from your check. See if your Medicare Advantage or employer’s health insurance plan will cover the cost of a health club membership as a preventive measure.
Also check your W-4 withholding forms to be sure you are having the correct amount taken from each paycheck. Getting money back at tax time may be a comfort, but you are actually giving the government an interest-free loan throughout the year. Couldn’t you use that money to better advantage?
If you are saving for a college education for your child or grandchild, check out the terms of your state’s 529 programs. Some offer better terms, state tax credits, tuition plans or investment choices than others. You could be better off investing in a 529 plan in another state, or in one operated by an institution of higher learning. Go to www.savingforcollege.com to learn more.
If you haven’t taken steps to make your death easier for your heirs, be sure to have a living will, medical and durable powers of attorney and an estate plan. You should consider a living trust if you have significant assets (or a family tree that looks more like a bush). And consider long-term care insurance, prearranged funerals or cremation.
The point? Saving a little bit each week or month can put you in a position to open your first no-load mutual fund. Developing good spending and saving habits can put you on the road toward an investment portfolio of funds that yields returns like we saw in 2012.
An individual can open an account at Fidelity, Charles Schwab or Vanguard for as little as $100 (if you agree to add to your account regularly) or $2,500 to $3,000 if you want to invest a lump sum. As I’ve said, start with a no-load, low-cost mutual fund that invests in the broad market. It may be called an S&P 500 Index, or a Total Stock Market Index fund. Later, you can add other funds to build a diversified portfolio of funds.
Don’t get me wrong. As anyone who has been in the markets over the past decade can attest, investing has its ups and its downs. If you’ll pardon the personal reference, even though the market indexes have returned to their all-time highs, my portfolio has not fully recovered from its peak reached in October 2007. But over the long haul, I agree with the former mutual fund manager, Peter Lynch: I don’t know where the market will be next week, or next year, but I know that five years … 10 years from now it will be higher than it is today.
It’s your money, and to grow it into a nest egg you can retire on some day, you just have to be in the stock market. If you don’t think you’ll ever have enough extra money to invest, consider some of the tips above to help you get started.
Don Kuehn is a retired AFT senior national representative. For specific advice relative to your personal situation, consult competent legal, tax or financial counsel. Comments and questions can be sent to email@example.com.