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Making Money Work: The Save-Spend Dynamic

In response to alumnae requests, the Quarterly published a series of articles in 2006 on making your money work harder. Other articles in this series addressed financial basics, planning for unexpected financial challenges, and overcoming debt.


By Maryann Teale Snell ‘86

Around my house are urgent notes I’ve written to myself describing budget woes, admonishing my behaviors, and suggesting reform: “Spending $500/month on food; budget is $300! Figure out how to cut back!” In my attempts to get a financial grip, I’ve tried the cash-only method. (Attached to my credit card is a ratty Post-it note with the command No! It’s ratty from all the times I’ve removed it to use the card, and then stuck it back on.) I toss change into a little cast-iron crock several times a week (yield: $45 annually, used for groceries). I stash a modest sum ($150) from my paycheck in a savings account, but there’s always a surprise expense (new brakes) or one I forgot to budget for (oil delivery), or some sudden, dire need (a hammock).

Being savvy about the save-spend dynamic is no small task, especially if it doesn’t come naturally—and that’s true for most of us, says money coach Olivia Mellan ’68. But setting realistic goals, creating an accurate budget, and striking a balance between discipline and deprivation are steps in getting there.

Savings Challenges
Saving even a few dollars at a time may seem impossible if you’re living paycheck to paycheck. When Lisa M. Utzinger ’02 (pictured below) started work at a nonprofit in Boston, she supplemented her entry-level income with odd jobs, but still couldn’t save. A little self-examination, though, has yielded insights: “A city lifestyle is expensive. I spend way too much on clothes, eating out, and entertainment.”

 

After graduation, Sabra L. Smith ’81 got in the habit of stashing away a bit of her paycheck each month. “I feel better if I’m sitting on a pot of cash in case of an emergency,” she says. Now divorced, the once stay-at-home mom is paying grad-school tuition as she prepares to reenter the workforce, shelling out money for home repairs, and trying to support her two young children. She says it’s “extremely discomforting to see my bank book hemorrhaging.” Like Utzinger, Smith concedes, she’s not sure she can afford the way she lives. “I feel trapped in my house … I’m terrified that I should [instead] be in a crappy little apartment with a roommate, to cut costs,” she says. “I’m used to buying what I want at Target when I want, but I have a feeling I should be buying ramen and eating at home more than I do.”

The first step toward saving money is understanding your short-, medium-, and long-term goals, says Mellan. “Until you know what you’re saving for—a vacation, your kids’ college educations, something you want to buy—you can’t get motivated about saving.” She has clients keep a “spending diary” of where their money’s going and how they feel about it.

“Then they can think about what they need to change to come up with more money. It’s simple: You have to work more or spend less—or both.”

Setting Goals
Jennifer K. Dick ’93 wants to buy property. She lives “on less money than most everyone I know,” but the savings process is slow despite a contract teaching English and American literature in Paris. Still, what she sets aside is adding up, and soon she hopes to invest her savings in home ownership. Beth Regish Smith ’92 too is saving for a down payment on a home. While Boston-area housing prices are “out of sight,” she and her husband are saving what they can and seeing progress.

Utzinger’s goal is to save $30,000 over the next five years, to make a down payment on a house. Toward that end, she has $250 automatically deducted from each paycheck. But “things inevitably come up—car repairs, Christmas shopping, trips—so I’ve had to dig into my savings,” she says.

“Balancing competing priorities—home, school debt, emergency funds”—is a challenge for Beth Smith. That, and having the patience and discipline to “plan for long-term goals at the expense of short-term ones.” Women, she adds, “need to be more vigilant about saving for retirement. We need to plan for ourselves, not just our families.”

Many of us just want to know what our savings—and investing—options are, and to receive useful, unbiased advice from a trustworthy source. Approaching a bank for answers can be daunting, especially if you sense you’re getting a sales pitch rather than helpful information. Dick says she taps friends, family, and
the Web for info—as well as bankers.

Expert Advice
“Saving and spending are like opposite ends of a tilted pencil,” says Dam T. Nguyen ’02, a financial adviser setting up her own firm. “If one goes up, the other goes down. To get a handle on saving for any purpose—retirement, a home, a wedding—you need a clear understanding of where the money’s going.”

Tiffany Ross ’93, a financial representative for Northwestern Mutual Financial Network, says “it’s critical to ‘pay yourself first.’” Consider your savings a “bill” you’re responsible for each month, she advises. “Pay it just like you’d pay the rent, mortgage, or cable bill.”

“The best way to save is through automatic deduction via payroll or from your bank account,” says Camille M. Gagliardi ’90, a certified financial planner® with Ameriprise Financial Services. Sign up for “an employer-sponsored plan (such as 401(k), 403(b), or 457), where you receive a match. If that’s not available, set up a monthly [payment] to an investment account from your checking account. It’s easier than trying to make yourself sporadically save.”

Inspiring people to take charge of their finances is part of Olivia Mellan’s job, but she encourages self-compassion while learning how to put money aside. “You shouldn’t save so much that you feel so constrained and then go out and have a binge,” she says.

“Also, some people say if you have credit-card debt, you shouldn’t save anything, you should just pay it off. But many of us in the money field don’t believe that,” Mellan adds. “We think it’s psychologically important for people to start saving something, even if it’s a teeny bit. It helps them see that they can save.”

Any way you look at it, being master of your monetary domain requires effort. Mellan suggests keeping a picture of what you’re saving for in your wallet, as a reminder. Expect to fall off the wagon now and then. “As a nation we are very bad at delaying gratification for deeper fulfillment,” she says. “We don’t seem to understand the value of it. But getting better at it can be a tremendous boost to people’s self-esteem.”

As someone who has paid down her credit-card debt from $35,000 to $5,000, is now making monthly payments to a savings account, and has recently managed to satisfy a couple of decades-old yearnings (drum set and pickup truck), I can attest to that.

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10 Tips from the Trenches

1.    Redefine “emergency.” Consider your savings account off-limits except in a true emergency (not that the boots you’ve lusted after are on sale, or that you bought too many mai tais on vacation and the credit-card bill has now arrived.
2.    Set spending priorities. Forgo the Starbucks latte and drink free office coffee (or, if coffee is your thing, drink Starbucks every morning, but bring lunch).
3.    Keep your mitts off. Put a small amount in an account that can’t be touched for several years. It will earn interest, and you won’t empty the account when things get tight around holiday or tax times.
4.    Live within your means. If you can’t afford that ski trip, don’t take it.
5.    Be real. Buying something on sale doesn’t mean you’ve saved—you’ve still spent money.
6.    Live modestly. Even if you can afford to drive a BMW, join a fancy gym, and go to an expensive hair salon, that doesn’t mean you should.
7.    Be binge-free. When you see something you want but it’s at the limits of your budget, think hard: will you really wear it, use it, value it? Why or how often?
8.    Nip that paycheck. Get a savings account and have money automatically transferred to it every pay period.
9.    Split your raises. When you get a raise, put at least half of it in your 401(k). You won’t miss that money and you’ll still see an increase in your paycheck.
10.    Keep your eyes on the prize. Save for something specific—a house, a wedding, grad school, a new car, a trip to Europe. It helps to visualize a goal.

A tip of the hat to Jennifer Dick ’93, Sabra Smith ’81, and Lisa Utzinger ’02 for their advice.