7 Savings Myths: Busted!

Americans have started doing it again with a vengeance. Saving, that is.

The US savings rate touched 5% in the 2nd quarter of 2009 and has been hovering steadily over 3% since then. While that’s still a far cry from the double-digit savings rates we saw in decades past, it is a big improvement from the negative rates of personal savings we had at the start of this millennium. However, there are many savings myths still floating around out there. Here are 7 Savings Myths – Busted!

1. I can only save a little bit, so it’s not worth it. Would you tell your child in the morning, “Mommy only has time for one hug – so I’m not to give you any?” Be loving with your money too. Every little bit really does count. According to Coinstar, Americans have $10 billion of loose change rolling around. Small bits really do add up. I met one couple that saved $7,000 in 6 months by depositing change and all bar-tending tips into a big, previously unused flower vase in their bedroom.

2. I’ll START saving money when I make more money. I hear this all the time – but it doesn’t happen. I’ve met people who can save on incomes of $30k and who can NOT save on incomes of $300k. Once you are making a living wage it comes down to a mindset. It depends on how you value happiness today versus security tomorrow.

3. If I earned more money it would be EASIER to save. Not always true. Lifestyle creep has an insidious tendency to kick in as you make more money. You wear a fancier suit and then you feel like you need fancier shoes, and then a fancier a car, and then a house….

4. I want to be a good parent, so I need to give to my kids now so they can have a better life. First, the money you save early on is the most valuable. But worse, you are teaching kids to be dependent. Boomerang kids are a huge issue. 75% of 18-24 year olds right now are getting some form of economic help from their parents and for 40% are getting $10,000 or more a year!

5. I can always get a loan if things go wrong. Wrong. Lenders want to lend you money when you don’t need it. Why? Because they are sure you can pay them back. The worst possible time to be approaching a lender is when you are in dire straights.

6. Saving is all about deprivation. Nope, saving is all about spending. It’s just spending that you’ll do in the future. You are not saving up all that money to sleep on it – it’s to spend during tough times, for enjoyment, and/or when you are retired. Read Your Money Or Your Life for more on this.

7. Saving means cutting out all the small fun stuff. Well start with the big stuff. Your home, car, kids, education, and health care will likely eat up 50% of your income. Look for savings there first.

What about you? Are you saving more or less than last year… and why/how?

30 Replies to “7 Savings Myths: Busted!”

  1. I love point #4 – I'd love for you to do a post on how to teach kids about money early on. My son is 3 and doesn't quite grasp the concept of money yet – though he's learning.

    At a recent yard sale, a friend gave him a toy from her table and because we've taught him that you must exchange money for things he insisted on giving her a quarter.

    This year, he'll have his own money pouch with $2.00 in quarters that he can spend on anything he wants, but once it's gone, it's gone.

  2. I would love to learn more about “saving means cutting out all the small fun stuff”. I am good at saving but I am not sure whether or not I am enjoying my life at the expense of fearing for my future. I have been working part-time for over a year while interviewing for full-time jobs in my field. The mental and emotional toll is gruesome but during this past year I learned how to save on a part-time income. I'd like to learn more about how to maximize my income whether it means investing, paying down debt or having fun. Yes, I want all three!

  3. Actually I just came across a GREAT resource for teaching kids about money: http://www.finance4kidz.com

    You are such a good mom – I love that story. Your son is very lucky to have such a good role model. I gave a financial literacy speech the other day and during the Q&A we were talking about the best money lessons we got growing up. One woman said it was at age 12 when her mom (single, working mom) gave her allowance 2x a year in lump sums. It was maybe $100 and had to fund all of her discretionary spending… ALL for six month. She blew threw it immediately the first time. Made it to 3 months the second time. And once she got that mom was not budging on the – “when it's gone, it's gone” she learned to budget like a pro & has been doing so ever since!

  4. And you CAN have all three! These are just ridiculously brutal economic times we are going through right now. The fact that you are able to save anything on a part-time income speaks volumes about the odds that one day you will have all three in spades. If you have a nearby library, I'd recommend reading ON MY OWN TWO FEET (book I co-wrote back in 2007) which runs through the basics of balancing those competing demands on your money. Another great book I love on paying down debt is Jean Chatzky's PAY IT DOWN. And for an all over lesson in financial fitness you can't beat Dave Ramsey's TOTAL MONEY MAKEOVER. So keep your financial sights set high. You will get there!

  5. I notice I am saving more and finding ways to really live within my means. Meaning, don't just run it on credit b/c I have the 'card' rather save up for it (like my grandparents did) to purchase it with 'real cash.'

    Great dialog and love what you have put here!

  6. Good for you – think our grandparents had it right. If you don't have the cash, 9 times out of 10 you can't afford to buy it. To me one of the really big silver linings that has come out of this economic / job / stock market train wreck is the renewed interest in mindful spending. Sounds to me like you are doing a fantastic job of this. Keep up the great work (and thanks for kind words as well πŸ™‚

  7. You always have such great tips – love your blog. πŸ™‚

    No one seems to be addressing your question! I personally am saving much more than I was last year. This time last year, I was making about $19,000/year and spending all of it. Then I got a raise, and now I am still spending exactly the same amount on bills and expenses every month, but I'm saving every other dollar coming my way. The only “lifestyle creep” that has occurred is an added “fun fund” of $50/mo that I didn't previously have (on my old budget, there was zero room for fun). Even though I'm still spending the same as I was last year, I feel much less stressed about money because I'm seeing my savings consistently growing, and I feel much safer than I did living paycheck-to-paycheck. Plus, now I'm free to go to the movies every once and awhile, or meet up with friends! $50 can really go a long way. πŸ™‚

  8. Saving every other dollar of that raise – way to go! That's so totally the name of the game. Good for you & thank you so much for sharing this. Real life examples like yours are exactly what we all need to get the courage and inspiration to make the tough choices. And as you so rightly point out – the rewards of those tradeoffs really CAN go a long way!

    ps: big karmic hug for your kind words about the blog – will do my best to keep useful info flowing!

  9. I did something last month that had unintended consequences. I moved my computer- which is used from time to time for bill paying-to a smaller table and found that the large conference-sized table formerly used for this computer was riddled with receipts and money type to-do's. I instantly saw how much importance I was giving to financial obligations. It's part of life, yes, but it shouldn't take over a whole conference table January to December. My desktop computer now sits on a small glass table and to the side sits a one drawer unit to hold my checkbook, a calendar and bills due in the next 15 days. Not so scary anymore, I tell myself. Smile, Mary

  10. Mary – Go you! If you have a simple, straightforward, ongoing system for overseeing your finances there is absolutely no reason why they should be holding your conference-sized table hostage. Thrilled to hear you've liberated it. And if you are not already doing this, utilizing online banking at your primary bank to receive and pay bills can be another way to cut down on the financial clutter and give you more time for what money is really meant to do – help you live the life that makes your heart sing. Thanks for sharing your victory. Smiling over here now too!

  11. Re: Your article on financial weakness signs in men.
    Are you suggesting that women be “gold-diggers” in the midst of a recession?
    And, then do you recommend that the female blame the current economy on her individual man?
    Do you realize how offensive your article is to men in general?
    You may be surprised to hear that when couples are victims of flood, fire or recession, they are in the same boat together.

  12. Ken,

    Wow. I find it fascinating that you would interpret my post on “Are You Dating a (Financial) Deadbeat?” as a discussion of “financial weakness” in men. The point of this article is to highlight potential signs of financial IRRESPONSIBILITY.

    Let me also say if I could write the post all over again I'd write it in gender neutral terms as the questions are ones men should absolutely be asking of the women (or men) that they are thinking about becoming romantically involved with as well. This is not about gender – it's about living within your means. Clearly this nation is in the midst of very tough economic times. There is no shame in being in a financial rough spot – only in trying to hide that fact by acting as if everything is ok when it isn't. That is what this post is about.

    Lastly, your question, “And, then do you recommend that the female blame the current economy on her individual man?” is actually quite insulting to women. It implies that men are the ones who are supposed to be the breadwinner and/or that women should be financially dependent upon men. So here's to a world where both men and women are working together to move forward in the same boat of financial responsibility though both choppy and calm seas.

    Manisha

  13. need a laugh men in such an economic downturn lately? Well read what
    Manisha Thakor wrote. A ONE SIDED ARTICLE ABOUT MEN IN GENERAL
    “Are You Dating a (Financial) Deadbeat?”
    by Manisha Thakor
    Friday, July 23, 2010
    HOW ABOUT THE MILLIONS OF WOMEN WHO HAVE LUGGAGE AND CHRONIC FINANCIAL PROBLEMS ON THEIR OWN?
    EVERY WOMEN OUT THERE LOOKING FOR A RELATIONSHIP OF ANY SORT, AROUND THE UNITED STATES GETS THIS QUESTION IN WITHIN 5 MINUTES OF MEETING A MAN.'WHAT DO YOU DO FOR A LIVING?”
    DEADBEATS? MOST WOMEN ARE A HANDFUL IN GENERAL, ALWAYS COMPLAINING, AND WANTING MORE AND MORE AND ARE NEVER SATISFIED.
    THEY IN GENERAL NEED FINANCIAL HELP ALWAYS, THEY NEED A PROBLEM SOLVER, AND A SOCIAL DIRECTOR 24/7.
    IN THE LAST 4 YEARS DIVORCE HAS BECOME AN EPIDEMIC, LEAVING MEN BROKE, DEPRESSED, AND EMOTIONALLY DISTRAUGHT.
    WHAT I LIKE TO KNOW MANISHIA THAKOR, IS WHAT DO WOMEN BRING TO THE TABLE IN A NEW RELATIONSHIP?
    AND OLD SAYING IS TRUE, A WOMEN IS LIKE HAVING A YACHT, AND IT IS EXTREMELY COSTLY TO MAINTAIN IT.
    MARRY A DOCTOR, A LAWYER DRUMMED INTO THEIR HEADS SINCE CHILDHOOD. MARRY A RICH MAN, AND END RESULT, A NEW PROFESSION EMERGES, GET 50% OF EVERYTHING HE HAS. DIVORCE TIME!
    YOUR ARTICLE IS REALLY DUMB, AND SHOCKING THAT FORBES PAYS YOU TO WRITE NONSENSE. IS FORBES BECOMING LIKE THE INQUIRER?
    KNOW THIS MEN, NAILS,PEDICURES, HIGHLIGHTING, CLOTHES, JEWELRY, VACATIONS, TAKING THEM TO RESTAURANTS, CARS, AND ANYTHING ELSE THEY WANT, IS NOT WORTH THE END RESULT OF CHRONIC BITCHING, ARGUING, AND MAKING LOVE ONCE EVERY THREE MONTHS WHEN THEY WANT
    OR WHEN THEY ARE IN THE MOOD.
    FIRST THEY MAKE YOU FEEL IMPORTANT, THEY CAN'T ROMANCE YOU ENOUGH, AND JUST LIKE A WATER TAP, THEY SHUT OFF THE SOURCE SOONER THAN LATER.
    DEADBEATS? EVERYTHING IS MONEY AND YOUR ARTICLE ONLY PROVES THAT
    THIS IS ALL SOCIETY IS LOOKING FOR AND REINFORCED WITH YOUR RIDICULOUS ARTICLE.
    MEN SHOULD PROTEST YOUR ARTICLE AND LET FORBES KNOW HOW THEY FEEL ABOUT IT!

  14. Financial literacy??? How about literacy in general. You need someone to edit and proofread for you! I'm available. It's barring not baring.

  15. I read something on Yahoo about financial management problems of a prospective mate. You mentioned that one way to tell if the individual is financially careless was if they had a large living space that was sparsely furnished. Some people have good financial management skills who do not want to live in clutter. Clutter to me is not only living in trash but having the cost of that trash on a credit card bill.

    http://www.rd.com/living-healthy/the-hoarding-s
    http://understanding_ocd.tripod.com/hoarding1_w
    http://www.mayoclinic.com/health/hoarding/DS00966
    http://understanding_ocd.tripod.com/index_hoard

  16. Ahhh, yes – there appears to be much confusion about the point I was trying to make in the piece you reference, “Are You Dating a (Financial) Deadbeat?” As a diehard minimalist myself, I'm all for living clutter free!

    The (greatly misunderstood) point I was attempting to make in that post is that many people are in severe financial pain because they bought way more house than they could comfortably afford (for instance buying a 4 or 5 bedroom home when their income level indicated purchasing power for a 2 or 3 bedroom home) and thus they are literally unable to buy any furniture because they are totally cash strapped.

    In other words, my intent with that point was to highlight the danger of biting off more house or apartment than one can comfortably financially digest – I'm 100% with you that clutter is nothing to aspire to.

  17. Yep – you are totally right. I was “baring” my poor proof-reading skills with that typo in the post, “Are You Dating a (Financial) Deadbeat”. Barring is indeed the correct spelling. Thanks for pointing out!
    _________________________________________

    MANISHA THAKOR
    personal finance expert Β· for women

    ARE YOU ON FINANCIAL TRACK?
    Click here to get my eUpdates & Find out

    713-927-3627
    VISIT MY NEW SITE: http://www.ManishaThakor.com
    _________________________________________

  18. HEY — I TOLD MY TWO DAUGHTERS IF HE RIDING A BICYLE, LIVING WITH HIS PARENTS, OR HAS A ONE ROOM APT AND IN BETWEEN JOBS – RUN AS FAST AS YOU CAN FROM THE GUY.

  19. You removed my post. It did not make your writing any better or the issues you raise less superficial.

    How does finance for women differ from the finance for men. Do you really believe that an investment cares about gender? It doesn't. But waiving a “feminist” or “for women” card lets you make money. How prosaic.

  20. Actually, as any savvy practitioner of investment management would know – women do have slightly different investment needs than men. Statistically speaking, women live an average of 7 years longer than men and thus need a greater percentage of our portfolios to be allocated to equity at any given point in time to ensure we do not out live our funds. As a Harvard MBA, CFA, and former buy-side equity analyst and portfolio manager – I assure you, this is not a superficial issue. A basic review of the impact of compound earnings on portfolio terminal values proves this point to be mathematically quite significant.

    As for removing your prior post – I found the tone of your comments to be sarcastic and condescending and wish for this blog to be a place where people can disagree without being disagreeable. It sounds like my writing is not a match for your interests. There are many other personal finance blogs for you to choose from, so I suggest you spend your time reading and commenting on ones that resonates more strongly with you.

  21. Wow, “portfolio terminal values proves this point to be mathematically quite significant.” This absolutely changes everything. Financial planning must be great?! Tell it to a women friend of mine who was sold a financial product that was beneficial to her CFA and not so great for my friend's finances. Maybe we should speak about my coworker who sacrificed for years trying to build his retirement funds (under the influence of savvy practitioner of investment management) only to be wiped out in dot com crush when he had to retire. Let's talk about the victims of the recent financial meltdown who lost their life savings to the financial industry. The industry laden with Harvard MBAs, CFAs and the likes. These are not isolated cases. It is the norm. The truth is that any investment caries risk of uncertainty. Uncertainty that you disclose to you clients in booklets hidden under the mountain of paperwork. The reason it is hidden is because you want to appear certain to your clients so they continue to buy your services. The certainty you project is a marketing ploy in much the same way as “personal finance for women” slogan you use. If Harvard MBA and CFA provided any advantages over an average informed person (note a gender neutral reference) you would not have to provide “advice” but make money with the financial products instead.

    As to being sarcastic and condescending in my prior post, you are absolute correct. I was both of these. It was meant to provoke a bit of controversy about the subject and about the method of your delivery. Is it a favorable opinion about what you do? It is absolutely not. It doesn't make it any less true.

  22. Wow, “portfolio terminal values proves this point to be mathematically quite significant.” This absolutely changes everything. Financial planning must be great?! Tell it to a women friend of mine who was sold a financial product that was beneficial to her CFA and not so great for my friend’s finances. Maybe we should speak about my coworker who sacrificed for years trying to build his retirement funds (under the influence of savvy practitioner of investment management) only to be wiped out in dot com crush when he had to retire. Let’s talk about the victims of the recent financial meltdown who lost their life savings to the financial industry. The industry laden with Harvard MBAs, CFAs and the likes. These are not isolated cases. It is the norm. The truth is that any investment caries risk of uncertainty. Uncertainty that you disclose to you clients in booklets hidden under the mountain of paperwork. The reason it is hidden is because you want to appear certain to your clients so they continue to buy your services. The certainty you project is a marketing ploy in much the same way as “personal finance for women” slogan you use. If Harvard MBA and CFA provided any advantages over an average informed person (note a gender neutral reference) you would not have to provide “advice” but make money with the financial products instead. nnAs to being sarcastic and condescending in my prior post, you are absolute correct. I was both of these. It was meant to provoke a bit of controversy about the subject and about the method of your delivery. Is it a favorable opinion about what you do? It is absolutely not. It doesn’t make it any less true.

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