An Article from Aaron's Article ArchiveLearning to Save
Photo: Desert FlowerIPv4You are not logged in. Click here to log in.
Use Google to search aarongifford.com:
Learning to Save
Thursday, 01 May 2008 9:52 AM MDT
The adage that it's wise to save at least 10% of one's income has buzzed around in my head for years. A recent radio talk show host expanded upon it, suggesting saving 10% and investing 10%. As a member of The Church of Jesus Christ of Latter-day Saints, I also subscribe to the concept of tithing. That means I believe in making regular charitable contributions of 10% of my income to my church as well as making charitable offerings to other worthy causes (like contributing to humanitarian aid, to local food banks, or supporting the local troop of the Boy Scouts of America, for example).
That's at least 30% of my income. Wow! What a goal! I'm not there yet, but I'm making progress.
Some progress I've made thus far: I opened a ING Direct Orange Savings Account back in 2005 and used their automated savings plain to auto-deduct $100 each month from my bank checking account. Over the course of time, I accumulated enough savings to permit me to open a Vanguard S & P 500 mutual fund (VFINX). At the time I believe Vanguard's minimum requirement was $2,000 or $2,500 or so for this fund --it's now at $3,000 I believe.
(Aside: If you ever want to open an account with ING Direct, either an Orange Savings, or their Electric Orange checking account, and you open it with at least $250.00, you can get a $25.00 one-time bonus from ING for doing so if you contact me and give me your email address so I can refer you as a friend. I also get a $10.00 one-time bonus. You win. I win.)
What's nice about opening the Vanguard fund is that since I've opted for electronic delivery of all notices and documents, they waive the annual fee that they otherwise charge for accounts like mine that have less than $10,000 in value. Another benefit, is I've now set up automatic investments that monthly automatically deduct at lest $50 from my checking account and invest in the fund. And there's no brokerage fee for this small-scale dollar-cost-averaging method of investments.
Were I a big investor regularly investing in index funds like this using large chunks of money (Don't I wish I were!!!), I'd seriously consider one of the Exchange Traded Fund (ETF) equivalents, but since I invest small amounts regularly, the brokerage fees even with someplace like Scottrade would eat a significant chunk of my capital each purchase.
If I take into account what I have automatically deducted from my paychecks before taxes and contributed to my SIMPLE IRA investment plan offered by my employer, and my automatic savings plans and Vanguard investment automatic investments, I've actually finally reached the 10% savings goal. I've got another 10% to go before I can say I save 10% and invest 10%, however.
(As for tithing, I've been a tithe payer all my life and can strongly attest to the blessings that flow from paying a tithe. It really works! As promised in Malachi 3:8-12, God truly does pour out blessings! And I'm not telling you this to boast or claim to be spiritually superior or anything. I just an ordinary guy. But I sincerely believe in the concept of tithing. My life and the lives of my family members have repeatedly been blessed, especially in times of need. I believe God honors His promises if we keep his commandments.)
My next financial goal is to eliminate all the debt I've accumulated over the years. I've debated whether or not to stop my 10% savings/investing plan and instead apply that money to paying down debt, then resume in a few years once I'm debt free. I hesitate, however, because I haven't yet proved to myself that I can be financially disciplined enough to live more frugally and avoid any new debt. I've got work to do on this.
In the first week of last month (April 2008), I made a commitment and promise to myself: I will not buy anything with my credit cards unless I pay off the balance in full within the 20-25-day grace period (and thus pay no interest). Additionally, I've stopped my 10-year-old habit of collecting DVDs, CDs, books, HD-DVDs, and Blu-Ray discs—put it on hold—until I'm out of debt (out of consumer debt and auto debt that is, excluding my mortgage). I've felt an urgent need to follow the counsel of LDS church leaders and get out of debt and stay out of debt. I've ignored it far too long (having acquired my first credit card in 1995 or 1996 which I promptly used to buy a computer system—and I've had consumer debt ever since).
What's embarrassing to me is that if I add up all my credit card debt (unsecured consumer debt) and add to it my RAV 4 auto loan balance, I owe about 65% as much as I owe on my mortgage (a 15-year mortgage).
Cash-flow wise it's painful. If I was consumer-and-auto debt free, I could easily meet my 10% savings, 10% investment, and 10% tithing (plus other charitable offerings) goal! I could even then make prepayments on my mortgage and have my house paid off in only a few more years, freeing up even more cash flow for savings, investment, and charitable contributions. And I could resume my movie/music/book collecting without worry.
Ug! That's INSANE! What was I thinking?!?!? Well, I'm-a-gonna change!
These are my goals. I hope to update my web site periodically to record how I'm doing. I'm cutting back wherever I can, especially as gas prices climb higher and food prices follow.
So how are you doing savings-wise? Are you able to save anything? I sure hope you are. If not, I encourage you to, even if it's only $5 or $10 each month.
P.S. I've gotta tout the local America First Credit Union here in Utah. They have a sweet set-up called a Dedicated Savings Account that earns similar interest rates as CDs, has terms a bit like a CD, but lets one auto-contribute each month as little as $10.00, with no minimum opening balance. Not many banks can match that! And their Dedicated Savings and CD rates are comparable to many larger institutions' Money Market or CD rates. Way to go, AFCU!