What It Takes

Jonathan Clements

SAVING DILIGENTLY sounds like such a rudimentary skill that it gets scant respect. Who couldn’t spend 10% or 15% less than they earn, so they set aside a little money for the future? And yet the U.S. savings rate remains miserably low and many folks are pitifully ill-prepared for retirement.

The reality: Saving money may be simple but, clearly, it isn’t easy. What does it take? Here are six key ingredients.

1. There’s the obvious: We need an income. The more we earn, the easier it should be to save. But it doesn’t always work out that way. I have met many folks with modest incomes who sock away impressive sums, and others with fat paychecks who manage to save very little.

2. Low fixed costs. Why do many families fail to save? Often, they simply can’t, because they’ve boxed themselves in with a litany of monthly fixed costs, everything from mortgage payments to insurance premiums to recurring fees for phone, internet, cable, music streaming and more. Result: They have so little financial wiggle room that it’s almost impossible to save.

3. Self-control. Even with low fixed costs, saving can be a struggle, because temptation abounds. When something catches our eye, we need to squash the impulse to immediately open our wallet. By delaying gratification, we’ll have time to consider whether it’s truly money well-spent. For some, this is easy. For many, it’s hard—in the same way it’s hard to eat less and exercise more.

For instance, if I’ve had a long day banging away at the computer keyboard, I’ll often forget all my good intentions, and reward myself with some unhealthy food and a glass or two of wine. For others, spending serves the same purpose. It makes them feel better in the moment, even if they won’t feel good when the credit card bill arrives.

4. An aversion to financial stress. Spending may give us a short-term thrill. But excessive spending can also lead to ongoing financial stress, as we discover we can’t pay the credit card bill and maybe not even the rent. As we come to appreciate how terrible that stress can be and how great it feels to have our finances under control, spending can lose its allure.

5. Self-reflection. When we’re young, it isn’t surprising that we spend too much on items that deliver little happiness. We simply haven’t had time to learn from experience.

But as the spending disappointments pile up, we gradually come to appreciate how little happiness we receive from our purchases. Self-control is no longer a problem, because the goodies no longer seem tantalizing. The sooner we get to this point, the easier it’ll be to lasso our spending and get on the right financial track.

6. A fondness for our future self. If we spend money today, we can’t spend it tomorrow, let alone in 30 years. If we’re rational, we would care more about the future when we’re younger, because there’s potentially so many years ahead of us. But ironically, it seems our concern for our future self grows as we get older.

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