The 10 Smartest Things Ever Said About Saving

“Place a substantial premium on the future.”  That 7-word answer was given by Natalie Gochnour, associate dean of business at the University of Utah, in response to a question by the Deseret News about the most important financial advice she had ever received.  Gochnour received this advice from her father, physician Merrit H. Egan. 

In the article Gouchnour is quoted as saying the advice, “…doesn’t seem profound.”  I beg to differ.  I think it is incredibly profound and the key to helping you rewrite your financial story.         

Of course, in the world of money the way we place a premium on the future is by saving, and Americans are notoriously poor savers – and getting worse.  Daniel Solin, in The Smartest Money Book You’ll Ever Read reports that the savings rate in the US declined steadily over the past five decades from 9.9% in the 1960s to 2.3% in the 2000s. 

And yet, without saving financial progress is impossible.  That is why I consider the personal savings rate to be the most important measurement in personal finance.  In a prior post I discussed how to calculate your personal savings rate.    

So to assist you in becoming a better saver here are the 10 smartest things ever said about saving:

(1)   The Road to Wealth: “I found the road to wealth when I decided that a part of all I earned was mine to keep.”  – George S. Clason in his classic book The Richest Man in Babylon

Many of you have probably read Clason’s famous quote about saving but might not be familiar with his additional thoughts on the subject.  In the same book Clason adds:

“‘A part of all I earn is mine to keep.’  Say it in the morning when you first arise.  Say it at noon.  Say it at night.  Say it each hour of every day.  Say it to yourself until the words stand out like letters of fire across the sky.  Impress yourself with the idea.  Fill yourself with the thought.  Then take whatever portion seems wise.  Let it not be less than one-tenth, and lay it by.  Arrange your other expenditures to do this if necessary.  But lay that portion first.”

On the same topic businessman and religious leader L. Tom Perry adds, “It is amazing to me that so many people work all of their lives for the grocer, the landlord, the power company, the automobile salesman, and the bank, and yet think so little of their own efforts that they pay themselves nothing.”

The road to wealth is paved with disciplined, consistent saving.  There is no other way.   

(2)   Saving is More Important than Investing:  “Give me a choice between some savvy investors and some diligent savers, and I’d bet on the savers every time.  The fact is, committed savers can add so much more to a portfolio’s growth.  Let’s say our savers sock away 20 percent of income a year.  That would put them far, far ahead of their fellow Americans who – as a group – save perilously close to zero.  By contrast, if a group of stock market mutual fund managers beat the market averages by one or two percentages a year over the course of a decade, the managers would likely be hailed as market-beating heroes.  Yet the margin of victory is hardly impressive – and the real heroes would be the diligent savers.”  – Jonathan Clements in The Little Book of Main Street Money

Investing is important but without saving you will have nothing to invest.  Saving also adds some consistency to your finances.  The market giveth, and the market taketh away, but saving can be a constant.  Diligent, consistent savers are, indeed, the heroes of personal finance.       

(3)   Cool the Now and Heat the Future: “To resist a temptation we have to cool it, distance it from the self, and make it abstract.  To take the future into account, we have to heat it, make it imminent and vivid.”  – Walter Mischel, psychology professor at Columbia University, from his book The Marshmallow Test: Mastering Self-Control

Mischel is the genius behind the original “Marshmallow Test” that he designed on a whim at Stanford University in the 1960s.  The results of this test, and its follow-ups, interested Mischel so much that he has spent his career studying self-control.  When asked to summarize what he has learned Mischel replied:

“I recall Descartes’s famous dictum cogito, ergo sum – “I think, therefore I am.  What has been discovered about the mind, brain, and self-control lets us move from his proposition to “I think, therefore I can change what I am.”

Mischel thinks the evidence is clear that self-control is not something you are born with, but something you can learn.  This is vital since saving is ultimately about self-control.  The next two quotes provide practical ideas for putting Mischel’s advice about cooling the present and heating the future into action to make you a better saver.

Additional Reading: “What is the Marshmallow Test for Adults?”      

(4)   Technology Instead of Willpower: “…when it comes to money, you can use technology as a substitute for willpower by having funds automatically deposited into retirement or other savings and investment accounts.  Sara and I wouldn’t be envisioning the retirement we can now look forward to if it weren’t for auto contributions.”  – Craig Matters, financial journalist

Automatic contributions make it easier to save by cooling the present.  You never have the money, so you never get attached to it. 

You have heard the old saying, “it is better to have loved and lost, than never to have loved at all.”  Ronald T. Wilcox, in his book, Whatever Happened to Thrift: Why Americans Don’t Save and What to do About It, turns this saying on its head, saying, “Remember, when it comes to money, it is better never to have loved than to have loved and lost.” 

Behavioral economist Richard Thaler states that a fundamental law of human nature is, “If you want to encourage someone to do something, make it easy.”  If you want to encourage yourself to save, make it easy by making it automatic.  Never give yourself the chance to get attached to the part of your paycheck you save.  Make the decision to save, automate it, and forget about it – except for increasing the amount over time (see #6).    

(5)   Connect With Your Future Self: “To people estranged from their future selves, saving is like a choice between spending money today and giving it to a stranger years from now.”  – Hal Hershfield, UCLA psychologist

Hershfield has done groundbreaking research incorporating brain scans into the field of behavioral economics.  This research shows that savers feel a connection to their future selves.  When they think about their future selves they use the same part of their brain they use when thinking of their present selves.  Spenders, on the other hand, use the part of their brain usually reserved for thinking about strangers when thinking of their future selves. 

Hershfield’s research has shown that age-progressed photos showing what you will look like in the future are extremely useful tools in helping people connect with their future selves, and thus become better savers.  Walter Mischel wouldn’t be surprised as this is really just a clever method to strengthen self-control by heating the future.

You can create an age-progressed photo of what you might look like in either 20 or 30 years quickly, easily, and for free at the website www.in20years.com.  I recommend everyone do this. 

Additional Reading: “A Picture is Worth…?: Use this Tool to Turn the Future You Into a Millionaire”       

(6)   Save More Tomorrow: “Saving is hard because it requires sacrifice, and sacrifice is a tough sell – even to yourself.  But what if we could dampen the pain of going without by committing ourselves to save more – tomorrow.  Tomorrow we will have more money, so it should not be as difficult.  That is the logic behind an ingenious set of recommendations by [Shlomo] Benartzi and [Richard] Thaler in their ‘Save More Tomorrow Plan.’”  – Ronald T. Wilcox, professor of Business Administration the University of Virginia’s Darden School of Business

The “Save More Tomorrow Plan” recognizes the fact that it is difficult to reduce your take-home pay.  Therefore, it encourages employees to save whatever they feel they can presently, and then commit to saving a fairly high percentage of any future raises until they reach their savings rate goal.    

Thaler and Benartzi piloted this plan at a couple of manufacturing companies several years ago with great success.  Participants in the plan were able to increase their retirement contributions from 3.5% at the start of the program to 13.6% after 4 years. 

I call this The Wimpy Savings Plan in honor of J. Wellington Wimpy, the memorable character from the Popeye cartoons that loved hamburgers but didn’t like paying for them.  His catch phrase was “I’ll gladly pay you Tuesday for a hamburger today.”  Unfortunately, there is a little bit of Wimpy in each of us.  The “Save More Tomorrow Plan” helps you overcome this tendency by allowing you to eat your hamburger today (keep your take-home pay as it is now) coupled with the commitment to save a significant portion of future raises (paying for it on Tuesday). 

This plan has caught on and is now available at many companies, but even if your company doesn’t participate you can set something up yourself that will do the same thing.  To learn more about the plan watch Shlomo Benartzi’s TED Talk titled “Saving for Tomorrow, Tomorrow.”      

Additional Reading: “Use the ‘Wimpy’ Savings Plan to Increase your Savings Rate”

(7)   BOGO Sale on Dollars: “My wife, Alice, and I love getting BOGO (Buy One, Get One) coupons for one of our favorite restaurants.  What could be better than that?  How about a BOGO sale on dollars?  If a bank ran an advertisement with the headline ‘BOGO Sale on Dollars: Quantities Limited’ my guess is that the lines would be longer than Walmart on Black Friday, yet millions of employees are given this opportunity daily through their company’s 401(k) match and turn it down.  Don’t be one of them.”  – Brent Esplin, blogger at www.Micawberprinciple.com. 

Lots of people far smarter than me have given the advice that one of the best financial moves you can make is to take full advantage of any 401(k) match your company offers. However, I couldn’t find a memorable quote from any of them on the topic so I decided to take a shot at it myself. 

In addition to instantly doubling your money contributing to a 401(k) also offers tax benefits.  Depending on your tax bracket you may be getting almost three dollars to save for the price of one.   

Vanguard founder John C. Bogle is fond of talking about the “relentless rules of humble arithmetic.”  Well, the relentless rules of humble arithmetic dictate that instantly doubling (or tripling) your money is too good a deal to pass up.  By far the quickest and easiest way to jumpstart your personal savings rate is by contributing at least enough to your 401(k) to get the company match.  

(8)   Actually Saving Money: “It is one thing to say you saved money by cutting back or shopping smarter, but it’s another to actually do it.  So when you eliminate an expense or buy something at a discount, put the money you saved into a savings account.  – J. Money, Popular financial blogger at www.budgetsaresexy.com

This works best with recurring expenses.  If you save money by changing cable plans, phone plans, car insurance companies, or reducing other monthly expenses don’t let the difference disappear into the black hole of your checking account.  Immediately set up an automatic transaction to transfer the difference into a savings account each month when you pay that bill.  You made a smart choice by saving money, now make an even smarter one by actually saving the money you saved.    

(9)   Sometimes You Should Eat the Marshmallow: “A life lived with too much delay of gratification can be as sad as one lived without enough of it.  The biggest challenge for all of us…may be to figure out when to wait for more marshmallows and when to…enjoy them.  But unless we learn to develop the ability to wait, we don’t have that choice.”  – Walter Mischel, psychology professor at Columbia University, from his book The Marshmallow Test: Mastering Self-Control

Taylor Milam, who blogs at www.thefreedomfrommoney.com, adds, “Never save to the point of misery or spend to the point of excess.  Binging and purging is unhealthy in both eating and spending.” 

Don’t go overboard with saving.  Try to achieve a balance.  Make a plan to be fair to your present self and all future versions of yourself.  Developing self-control doesn’t require you to punish your present self.       

Additional Reading: “Sometimes You Should Eat the Marshmallow“;  “Back to the Future: Money and Time Travel”  

(10)     Wisdom in One Word: “‘Save’ – the sum of all financial planning wisdom in one word.”  – Phil DeMuth, PhD from his book The Affluent Investor

There’s not much to add to that!

Take-Aways

So what should you learn from the 10 smartest things ever said about saving?  Here are some simple actions you can take right now to increase your personal savings rate:

• Save a part of everything you make
• Pay yourself first
• Automate your savings
• Get acquainted with your future self
• Increase your savings rate over time
• Take full advantage of employer matches 
• When you save money, actually save it 

And above all, don’t forget to enjoy today while also placing a premium on the future.