Super savers march to a different drummer. Impetuous financial decisions are not in their DNA. They exist outside the mainstream of consumerism.
These hyper-savers have a unique ability to delay gratification. Frankly, they prefer to consider the future first. Uncommon for many Americans whose attitude is live for today, super savers consistently save for tomorrow.
Principal Financial defines super savers as Americans who are socking away at least 90 percent of the annual employee contribution limit to their 401(k) plans. In 2016, Principal surveyed 2,424 retirement plan participants whose ages range from 23-51.
Interestingly, the study debunks a myth that Millennials are profligate spenders; a majority of this group (91%), identified saving for retirement as a priority. Perhaps living through the Great Recession and observing the impact on friends and family has something to do with their conservative attitudes.
Super savers are driven by a mission. A passion to master security one financial decision at a time. The more they save, the greater they yearn to raise the bar. Undeniably, saving money acts as an endorphin. Cash inflow over outflow is a key contributor to their sense of well-being.
Like a physical exercise regimen, shifting into super-saver mode takes small, consistent efforts that build on each other.
So, what lessons can be learned from this elite breed? How can we be part of the super-saver generation?
First, they find reasons to control what they spend and associate positive feelings with saving.
Super-savers think backwards, always with a financially beneficial endgame in mind.
They have evolved to consider the cumulative impact of monthly payments on their bottom line, which is not common nature for the masses (Read: People Buy Payments, Why Rates Can’t Rise). They internalize the opportunity cost of every large or recurring expenditure.
Super savers weigh the outcome of every significant purchase, especially discretionary items, which invariably increases their hesitancy spend. This manner of thought provides breathing room to deliberate less expensive alternatives and thoroughly investigate the pros and cons of their decisions.
A focus is on the opportunity costs of using credit and paying interest (resources that could have been otherwise directed into investments earmarked for long-term goals like retirement).
Tip for the super-saver in training: Sever the mental connection between monthly payments and affordability. How? First, calculate the interest cost of a purchase. For example, let’s say you’re looking to purchase an automobile. First, never go further than 36 months if you must make payments. Why? Because longer loan terms like 48 to 72 months is a payment mentality that will undoubtedly increase interest costs.
For example, let’s say an auto purchase is financed for $23,000. At 3.49% for 36 months, the payment is roughly $674 with total loan interest of $1,258. For 72 months, naturally there’s a lower monthly obligation – $354. However, total loan interest amounts to $2,525.
A super saver’s consideration would be on the interest incurred over the life of a loan, not the affordability of monthly payments. An important difference between this manner of thinking and most, is to meet a lifestyle, it’s common for households to go for the lowest monthly payment with little regard to overall interest paid. Super savers will either consider a less expensive option or adjust household budgets to meet higher payments just to pay less interest in the long run.
Super-savers experience enriching lives, but always with an eye on the future.
Members of the super crowd don’t live small lives -a big misnomer. I think people are quick to spread this type of narrative to ease personal guilt or envy. Certainly, a fiscal discomfort mindset is part of who they are when they believe personal financial boundaries are breached.
However, super savers thrive below their means. Extending themselves with new cars and big mortgages is uncomfortable and inhibits quality of life. Super-savers are not compelled to spend to gain social status and not motivated by keeping up appearances.
Tip for the super-saver to be: Give thought to the future before the present. Make it an obsession. In other words, delay some of today’s gratification for tomorrow’s security. There is a painless way to accomplish the task.
Super-savers are programmed to pay themselves before everything else. They proactively adjust their household expenditures so that company retirement and or emergency savings accounts are funded first. Payroll deductions or some form of automatic deposit feature make it easy to create and stick with an aggressive saving and investment program.
Make an initial bold move. A financial leap of faith: This week take a step to super-saver status and immediately increase your retirement payroll deduction to 15%. Don’t even think about it, just do it. Before consideration to your household spending.
Micro-track expenses for the month after the new deduction is in effect. Adjust spending to meet the new, increased deduction. Then work on the necessary cuts to expenses to continue the 15% or possibly adjust even higher, to 20%.
My thought is you’ll be amazed to see how quickly the change is accepted and the impact minimal to the quality of life. Only as I’ve witnessed how this action alters thinking to attach good feelings and reward to savings vs. spending. You’re now working super-saver muscles you didn’t even know you had.
Super-savers are a year late but rarely a dollar short.
No, super-savers don’t own the latest smart-phones, nor do they consider automobiles as luxuries. They’re merely for transport. Nearly half of “super savers” are driving older vehicles (47 percent) in order to direct dollars to their retirement savings per the study by Principal Financial.
The super-savers I interviewed are at least one or two smart-phone iterations behind (it works fine), and will investigate pre-owned autos over new. They’ll maintain and keep these automobiles for as long as they’re operational, well into hundreds of thousands of miles.
They’re not house poor.
Cars aren’t the only carefully considered big ticket purchases. “Super savers” often choose to live in modest homes (45 percent) and, among millennials, 18 percent are renting vs. buying. Read RIA’s rule for taking on mortgage debt.
According to the Core Logic Case-Shiller Home Price Index, house prices in Texas are growing faster than the national average. For example, San Antonio has gained 7.8% year-over-year compared to a national gain of 3.7%. Home prices are up across the country at the minimum, 5% above fair value.
The lesson? Super-savers are either going to wait (until prices moderate, as they’re disciplined, not emotional), or save for a larger down payment. Anything to avoid being saddled with a big mortgage that jeopardizes savings goals.
Super savers sacrifice current vacations for the permanent vacation fund.
Principal Financial discovered super savers are prioritizing retirement savings over vacation funding. Many say they are traveling less than they’d prefer (42 percent).
The key is to re-define travel and become financially savvy while doing so. Super savers explore vacation adventures close to home, take frequent day trips and travel to popular destinations in the off-season when expenses can be 15-25% less.
Studies show that super savers are independent thinkers. Working to maintain a current lifestyle that rivals their neighbors is anathema to them.
Now, as a majority of Americans are utilizing debt to maintain living standards, super savers set themselves apart as a badge of courage. No doubt this group is unique and are way ahead at creating a secure, enjoyable retirement.
Whatever steps taken to join their ranks will serve and empower you with choices that those with overwhelming debt cannot consider.
Richard Rosso, MS, CFP, CIMA is the Head of Financial Planning for RIA Advisors. He is also a contributing editor to the “Real Investment Advice” website and published author of “Random Thoughts Of A Money Muse.” Follow Richard on Twitter.