By
Sheldon Jacobs
Jacobs is a former editor and publisher, The
No-Load Fund Investor newsletter. He is also the author of The
Handbook for No-Load Fund Investors,
and other books on no-load fund investing.
Save.
The greatest investment strategy the world has ever seen is useless unless you have money to invest, and the only way most people will have that money is to save. Always important, it is now vital, not just for your future, but also to protect yourself in case you become unemployed.
If you don’t already have savings, START SAVING! If you have some, SAVE MORE! Not “when you make more money,” or “when the recession is over,” but NOW, while you still have a job (if you’re lucky).
Most people don’t realize it, but how long you save can be more important than how much. I took this example from Mr. Evans’s book, The Index Fund Solution: Two people of the same age contribute to a company plan and earn the same rate of return. Over the years, Mr. Short contributes a total of $25,000; Ms. Long, only $10,000, but she started 10 years earlier. After 35 years, when both are ready to retire, we see the power of time: Mr. Short has $67,000, while Ms. Long walks off with $80,200.
But saving, as we all know, is hard, especially in times like these. Are their ways to make it easier? Yes. The main idea is to save automatically, so you don’t have to suffer the agony of a financial Hamlet: “To spend? Or not to spend?” Here are four ways to save with minimal pain:
- Ask your credit card company to pay your bills by automatic withdrawals from your checking account. This will eliminate those outrageous late fees and become, year after year, the most lucrative “investment” you’ve ever made. Here’s why: If your interest rate on unpaid balances is 20%, think of how much a mutual fund would have to earn over 10 years to give you an average return of 20 percent a year after taxes. Hint: You won’t find such a fund, because for all practical purposes, it doesn’t exist.
- Have a 529 college savings plan? Ask the plan provider to take a specified amount from your checking account every month. With the relentless increase in tuition fees, you’re going to need that extra money, anyway.
- Increase your mortgage payments. You’ll save money for retirement, accelerate the build-up of equity in your home, and pay less interest – all at the same time.
- If you’re lucky enough to have a 401(k) plan, see if your company will increase by a stated percent the amount that goes to your plan every year. It’s one of the most efficient ways to save, because you accumulate money tax-free, a fortunate fact that can add many thousands of dollars to your nest egg.
No one is going to do all these things. But if you do even one of them, you’ll be that much closer to spending smart and sleeping well.