Yielding Wealth | Personal Finance

Saving Money the Unconventional Way: 5 Tips for Building Your Savings

by miranda on October 16th, 2008

I am a big advocate of saving money. And I don’t mean just by spending less through coupon clipping and general frugality. I mean actually saving money — setting aside for some future date and/or emergency. Over at Passion Saving, Rob Bennett offers 10 very interesting  and somewhat unconventional tips for saving money. Here are my 5 favorite unconventional tips for building your savings:

1. Add income tax to purchases. Before buying something, think about how much extra you would be paying to fund a specific purchase.  Bennett points this out: “The sales tag on the leather jacket you want says that it costs $1,000. You know to add in the sales tax to determine the full price, which is perhaps 5% higher, or $1,050. But even that is not the true full price. You can’t buy the leather jacket by earning $1,050. You need to have $1,050 in take-home pay to buy it, and that means that on a pre-income-tax basis, you need to earn a good bit more, perhaps $1,250.” Wow. I never thought of it like that. The leather jacket or the big screen TV or whatever frivolous yet expensive purchase doesn’t seem as cool.
2. Multiply by 25 to see how much you need to save to support a purchase. Bennett points out that if you manage to grow your annual investments at 4%, you can multiply your annual costs by 25 to see how much you need to save to cover the expense: “If you spend $40 per year on magazines, you need to save $1,000 to forever free yourself from needing to work to pay for magazines.”
3. Make changes for a particular change that will enhance your life. I like this idea because so often we just focus on saving money because it’s the thing we’re supposed to do. Bennett recommends that you think of a specific goal for saving — a goal that will contribute to how much you will enjoy life. Getting ahead and saving for some unspecified and general “retirement” isn’t enough. Break it down into something like saving for a family vacation or a roomier family car brings your plans into more immediate effect and adds impact to the goal. Here is what Bennett says: “To make saving matter, direct your mental energies to the small things that saving can do for you at all stages of life instead of the big dramatic thing (financing an old-age retirement) that it will do for you only once near the end of your active years.
4. Think of spent money as hours worked. My husband and I already do this. If we want something, we consider how long each of us would work to pay for it. Is the time worth it? If so, we make the purchase. If it appears that our two or three hours spent having to work isn’t worth it after all, then we take a pass. This works especially well for me, since I am freelancer working from home and can usually adjust my workload. So I see immediate effects from this type of thinking.
5. Pay yourself last. Huh? That’s what I thought at first. Then I read the reasoning behind this statement. It is a culmination of a new thinking about saving money. The idea is that it can be enjoyable to spend money that you have (you have to live within your means), and that you do not need to make saving a chore. Here is what Bennett says about paying yourself last: “You should not be aiming to mindlessly cut spending anymore than you should be aiming to mindlessly spend. The goal should be to spend when spending offers the best value proposition and to save when saving does. To do that, you need to evaluate the value proposition offered by each act of spending and save only in those cases when saving offers more bang for the buck. You need to pay yourself last (but often).”

What do you think of these unconventional ways to save money?

Share This

Related Stories

• More Personal Finance Tips
• 3 Keys to Yielding Wealth
• Personal Finance Basics: Saving Money and Credit
• Saving Money: E*Trade Bank to Increase APY on Savings Account
• You’ve Heard it Before: Pay Yourself First

POSTED IN: Money advice, Personal Finance, Saving Money