Mind Over Money

“But I can’t save any money.” It’s an excuse I hear a lot. Sometimes it’s a whine. Other times I

“But I can’t save any money.” It’s an excuse I hear a lot. Sometimes it’s a whine. Other times I detect a note of defiance. In the past few years, it has become increasingly frequent, as more and more Americans make less than we spend, eating up the equity in our homes, borrowing from our 401(k)s. The national savings rate is declining. And the situation seems to be getting worse.

The question is: Why? Why don’t Americans make saving a priority? We certainly know that saving money — like eating broccoli and strengthening our core muscles-is good for us. In the latter cases, we listen. Yoga and Pilates have never been hotter. And broccoli now comes as a baby vegetable, precut and bagged, and even in purple. Yet saving for tomorrow is still a largely ignored and unappreciated skill. There are three reasons for this.

One: Saving today is harder. “We’ve had an income transfer away from the middle class,” says Anthony Pratkanis, a psychology professor at the University of California, Santa Cruz, who specializes in financial issues. The typical household income has held largely steady around the mid-$40,000 range for a good half decade, he points out, while prices have continued to rise. “If you’re having to spend a disproportionate amount of income on food and gas, it’s hard to save.”

Two: Credit became too accessible. For years it was simply too easy to get your hands on money to spend. While banks at one time would not let you spend more than 36 percent of your total income on debt (including mortgage), they stretched that number to 55 percent during the housing boom. Why save when you could get that big flat-screen TV today — just like the one the neighbors installed — and pay for it with mortgage debt that was both cheap and deductible?

Three — and most intriguing: Saving is, was, and always will be no fun. “Saving money,” explains Jason Zweig, author of Your Money and Your Brain, “doesn’t feel good.” Think about it this way: Choosing to save almost always means opting for delayed gratification instead of immediate gratification. “You can buy a pair of shoes today,” says Zweig, “or have a nice retirement 20 years from now.” You can go out to dinner now or put the money into an emergency fund in case the car’s transmission goes out — someday. You’re going to buy the shoes or head to the restaurant because the pleasure of getting something good today is much greater than the pleasure of getting something good years in the future — even if the reward in the future is bigger.

If it’s not shoes that make you go mushy inside, it may be technology, or rare books. But that’s not only an intensity you feel, it’s an intensity neuroeconomists can see. In recent years, this relatively new breed of experts in economics and neuroscience have started using MRIs to view the brain as it is making money choices. When something we want to buy comes into view, they see the pleasure center firing up as we get a feel-good dopamine rush. Similarly, getting a few dollars today is thrilling — more thrilling, in fact, than getting a slightly larger profit tomorrow. And if you have to wait a few weeks or months for that gain, it will have to be much bigger in order to arouse the same interest in your brain. Things way off in the future — like retirement — don’t jostle the pleasure center much at all.

Let’s say you’re 31 and you want to retire in 25 years. The key is to make the goal as concrete as you can, says Zweig. Pick your birthday circa 2033 as the day for your retirement goal. Then ask yourself, What do I want to do when I retire? Do I want a villa in Tuscany, a boat slip in Fort Myers, a condo in Waikiki, or a paid-off mortgage where I am right now? Of course, it’s different for everyone. But you’ve made retirement tangible: You have the date. You have the goal. Then you give it a name. It becomes “The Condo in Waikiki Fund.” You put a little Hawaiian music on your desktop, or cartoons of pineapples — whatever reminds you of your goal. Put your account statements in a manila folder and decorate it with Hawaiian beach scenes.

Sound corny? Sure, but what you’re doing, Zweig says, is building an emotional environment that you can save in. All these things work together to motivate you, and then when you see the pair of shoes, it will be easier for you to say to yourself, This is a choice between shoes and Hawaii. Suddenly, you can leave the shoes in the store.

Use your friends and family as a way to discipline yourself. Tell them what your goal is, and ask them to remind you if you’re about to spend money on something you won’t need. (Tell them you won’t get cranky and will appreciate the help.) You can even do this on the Internet. Dean Karlan and Ian Ayres of Yale just launched a website called stickK.com, which lets you post your goal, notify your friends, and set up penalties if you fail. It worked for both founders, who lost a significant amount of weight by pledging a significant amount of money if they didn’t drop pounds. But you could also use it to build an emergency stash, increase your contribution to your 401(k), or amass college savings for your kids.

Break it down. Stephen Brobeck, executive director of the Consumer Federation of America, says that one reason many middle-income families don’t save is that they don’t believe they can come up with big enough sums of money to do it effectively. The fact is, he says, small amounts can be quite effective. Start with your change. “It sounds trivial, but we have story after story of people who accumulated hundreds of dollars that way, realized they could do it, and worked harder to get more,” he says. Then add an automatic transfer from checking to savings every month. Some banks, like ING Direct, are even willing to transfer money weekly if moving smaller amounts more frequently sounds easier on your wallet.

Finally, recognize that the saving process is actually healing. It makes you feel better — a better person, a better spouse, a better parent — to know that you have something put away for your future. Says Brobeck, “You may have to make sacrifices in the short term, but you’ll feel so much better in the medium to long.”

Inspired to save? I hope so. But maybe you’re wondering where the money will come from. I put my head together with Jeff Yeager, author of The Ultimate Cheapskate’s Road Map to True Riches, to suggest ten places to start.

1. Adjust your withholding. If you get a tax refund each year, you’re giving the government a free loan. Change your withholding, then save the difference in your take-home pay.
Savings: The average 2006 tax refund was $2,324 — $194 a month spread out over a year (plus interest).

2. Limit trips to the supermarket. Every time you walk through those automatic doors, you’re bombarded with opportunities for an impulse buy, and you may walk out with at least one or two things not on your list. Try to make one big trip a week.
Savings: If you make four trips a week and spend $10 extra each time, cut three to save $120 a month.

3. Coupons aren’t just for groceries anymore. You can find coupons for movies, restaurants, and even clothing stores. Check out retailmenot.com.
Savings If your family dines out twice a month at $75 a meal, you’ll save $180 a year with 10-percent-off coupons.

4. Use public transportation or carpool. You’ll save on gas, maintenance, and even parking. Many companies take the cost of a monthly train or bus pass out of your paycheck pretax, saving you even more.
Savings: If you commute 25 miles round-trip each day, save about $100 a month by alternating driving each week with a friend.

5. Consolidate your plugs.
Between 5 percent and 15 percent of the power used by electronics is consumed when they’re turned off. Plug your TV, DVD player, cable box, and home entertainment system into a power strip or surge protector, then unplug it at night and when you’re not home. Savings: If your electric bill runs $120 a month, you’ll save up to $216 a year.

6. Lose the long-distance service. Even if you don’t make a lot of lengthy calls, you’re likely paying automatic billing fees each month just for having the service. Costco and Sam’s Club sell prepaid calling cards for around 3 cents a minute. Or try an Internet service like Skype.
Savings: Up to $110 a year in fees.

7. Audit your bills. Call your wireless provider once a year to make sure you’re on the best plan. Do the same with your cable, Internet, and (if you’re not taking the advice above) long-distance providers. Bundling all three usually nets a discount.
Savings: Several hundred a year.

8. Shop health food stores. They often have bulk sections, where you can buy things like cereal and beans by the pound at big savings.
Savings: Oatmeal, for instance, is 89 cents a pound at my health food store, and $2.79 for an 18-ounce canister at the supermarket. If you buy it weekly, you save $100 a year.

9. Buy pet medicine, supplies, and food online. Petcarerx.com and 1800petmeds.com offer premium brands for less.
Savings: Up to 50 percent.

10. Recognize what things really cost. Before you commit to that new car, use Edmunds’s True Cost to Own calculator. Input the car’s make, model, and year to find out what it will actually cost you each year.

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