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Spend Less, Save More

Tired of living paycheck to paycheck? Have a goal of seeing your savings grow this year? If that is one of your New Year’s resolutions—and even if it is not—this financial planning feature will put you on the right track.

The first step is to take a realistic look at your spending, and cut back where you can. A penny saved is a penny earned, after all.

With that in mind, we’ve put together a list of easy-to-adopt strategies for keeping more of your money in your wallet this year. And with help from two Kentucky-based certified financial planners, we offer tips on where to invest the money you save, so it can grow and work for you when you need it most.

Given the challenges of the current economy, most of us are mindful about thinking through the pros and cons of a big purchase—such as a new car or flat-screen TV—before we buy. But sometimes it’s the little purchases—the $1 or $2 impulse buys several times a day—that can add up at the end of the month to take an unexpectedly large chunk out of our wallets.

Dr. Jennifer Hunter, an assistant Extension professor of family financial management at the University of Kentucky, advises buyers to carefully consider their small purchases, just as they would larger ones. Asking yourself, “Do I really need this? Or is this an impulse buy?” for every purchase that’s $5 or less is one of the most important steps, she says, of beginning to rein in your monthly spending.

“When we see something that’s less than $5, we often buy on impulse. We tend to just spend, whether it’s a candy bar at the grocery store or a coffee at the gas station,” Hunter says. “So you have to train yourself to be more consciously aware of those small purchases. When you do that, you’ll often realize it is an impulse buy, and you’ll end up putting it back.”

To better illustrate areas where you may be overspending—say, for example, on eating out or on snacks at the work vending machine—Hunter advises making a list of all of your purchases. Write down everything you spend, whether with credit, check, or cash, every day for at least a week, or for a month, if you can.

“We have a handle on our major expenses every month. We know what our mortgage or car payments are. But it’s that feeling of ‘I had $50 in my purse on Monday, and by Friday afternoon I wonder, where did it go?'” Hunter says. Tracking your spending will help you see where your money is really going, and where you might be able to cut back.

“If you look at your list and see you’re spending $1.50 in the vending machine every day, after a month, that’s going to add up,” says Hunter, who is co-leader of the Kentucky Cooperative Extension’s Managing in Tough Times Initiative, which sponsors a helpful MoneyWi$e Web site——featuring newsletters and Web tutorials about ways to stretch your dollar, shop on a budget, set savings goals, and more.

Studies have shown Americans tend to spend less when paying with cash than if using a credit or debit card. The reason is simple: “There’s a sense of loss when you spend with cash and you see it leaving your hand that you don’t get with a credit card, which just goes right back in your wallet,” Hunter says. “When you’re turning the cash over and you know you won’t get it back, it forces you to think, ‘Is this really what I want to buy with this money?'”

Crystal Paine, founder of the high-traffic blog, which offers strategies for frugal living, also believes in the saving power of cash-only payments. Setting aside an envelope of cash each month for your food purchases is a great tool for forcing you to stay within an allotted grocery budget, she says.

While many bills like mortgages or car payments are fixed, a family’s grocery budget isn’t, so working to save as you stock your pantry and refrigerator can go a long way to padding your savings balance over the course of a year.

Paine, the mother of three young children, routinely feeds her family of five on just $40-$60 a week in groceries. Her online blog video series, 31 Weeks to a Better Grocery Budget, shares her hands-on tips for stretching your dollar each week at the checkout aisle.

The most important step, she says, is to start by planning your weekly menu around the store’s sale circular. Add in coupons (clipped in circulars or found online) for the items already on sale, and you’ve just scored significant price savings.

She advises families to start with a goal of spending $20-$40 per person per week on groceries. “That’s a good place to start,” Paine says. “Then, aim to lower that budget by 1-3 percent every month.”

Families should try adding in one cost-saving strategy at a time—whether that’s coupon clipping, buying in bulk, freezing meals ahead of time, etc.—for six weeks, to see if it works for them. “If I’m not saving at least $20-$25 per hour on whatever savings activity I’m doing, then it’s not worth my time and effort,” Paine says.

Don’t try to go from novice saver to extreme couponer overnight. That’s a sure recipe for disappointment and burnout.

“This is not a competition. Don’t compare yourself to other people,” Paine advises. “Don’t have any guilt about this. There is always going to be someone out there who gets all their groceries for $17. Just stay focused on your budget and your goal of reducing whatever you are spending by a small amount each month.”

As you work to adopt some of these money-
saving strategies, set a realistic savings goal so you can track your progress.UK’s MoneyWi$e Tough Times Initiative mentions a measurable goal of saving $50 across three months. It’s a good starting point.

Then, once the saving becomes routine, you’ll want to look for ways to invest the money so it can grow.

By far, the most popular vehicle for college savings is the 529 Plan, says Brent Ditto, a certified financial planner with Young/Ditto Financial Group at Hilliard Lyons in Elizabethtown. Its advantages are that the full dollar amount can be used for college (in other words, no taxes will be owed when the fund is used for higher education expenses).

The Kentucky Educational Savings Plan Trust offers a 529 Plan——or families can shop for a more or less aggressive plan from another provider, based on the timeline they have until their children enroll, Ditto says. Another added benefit: a 529 Plan can be transferred from one sibling to another, should an older child not use all of the funds.

Other college-saving options include the Coverdell Education Savings Account, which is more narrow in how it can be applied (typically for tuition only), Ditto says.

Families who want to start saving, but who are worried about the 10 percent penalty on their money should their child decide not to go to college, may opt instead for a custodial account (i.e., a mutual fund or other investment, which becomes the child’s at age 18), which would give them the flexibility of using the funds either for college or for something other than education, says Anthony McGlone, a certified financial planner with Edward Jones Investments in Flemingsburg.

As more businesses are doing away with pensions, greater numbers of workers are having to plan for their own retirement funds. Both Ditto and McGlone agree: it’s important to take advantage of the power of compound interest. The sooner you start saving, the better your bottom-line retirement nest egg.

Ditto shares a straightforward example: a 19-year-old who invests $5,000 annually for seven years (until age 25) in an IRA with an 8 percent return would end up at age 65 with a retirement fund of $969,218 for his $35,000 investment. If that same worker waited until age 26 to start investing $2,000 annually until retirement at 65 (for 40 years), with an 8 percent return, he would earn just $518,113 on his $80,000 investment. In the second scenario, the worker invested more than twice as much, but yielded just over half of the worker in the first situation. The bottom line: starting earlier and investing as much as you’re financially able will ensure you’re maximizing your retirement savings potential.

Both advise a dual approach to prioritizing your savings. First, maximize your 401(k) contribution to the point of your employer match—otherwise you’re letting “free money” elude you. Then allocate savings to a Roth or traditional IRA to the point that you’re financially able. (The maximum per-person IRA contribution will go up in 2013 to $5,500, plus an additional $1,000 for people ages 50 and over, says McGlone.) Savings and investments above and beyond these two initial steps could then include more contributions to a 401(k), or any of an array of vehicles, including real estate investment trusts, management futures, etc., says Ditto.

When planning for retirement, be careful to factor the cost of inflation into your monthly cost of living estimations. This is particularly key as people are living longer.

“A typical 3 percent rate of inflation means that if a person retires at age 62, by the time they are 86, they have lived long enough to see the cost of living double,” explains McGlone. In other words, someone who would require $4,000 monthly to live in retirement now, would need to be prepared to spend $8,000 monthly after 25 years.

McGlone also advises clients to think of their savings not as one block of funds, but rather in tiers. Short-term and intermediate-term money, which serve as safety nets, should be allocated to investments with guaranteed return on capital. That’s in contrast to long-term money, which should be allowed to stay in the market long enough to gain a higher average return.

Talk with a certified financial planner—go online to for a list of advisors in your area—for more specifics about the right college-saving plans or retirement plans for you.


Make it a goal this year to adopt one or two new cost-saving strategies into your monthly routine. Over the course of the year, these steps would really add up.

• Borrow books or CDs from the library rather than buying new.

• Do your own at-home manicures and save the salon fee.

• Host a clothes swap party among your friends, or shop at consignment sales and consignment stores rather than department stores.

• Cut your children’s hair (or your own) at home.

• Snag deals on like-new toys and children’s clothes at yard sales, Craig’s List, or consignment stores.

• If you don’t want to stop eating out altogether, aim to treat the family to restaurants on Kids Eat Free nights.

• Brown-bag your lunch at work, rather than eating out.

• Avoid high-priced, drive-thru coffee by brewing your own.

• Borrow from a friend rather than buy, if it’s a tool, gadget, or even a special outfit that you won’t need often.


A recent study by the Natural Resources Defense Council suggests that, every year, Americans throw away nearly half of the food they purchase without ever eating it. That means the average American family of four ends up throwing away the equivalent of $2,275 annually in food.

So rather than buying food staples each week out of habit, make a point of using all the supplies you already have in your freezer, fridge, and pantry before you buy something new—and before they go out of date. It’s an easy step that could save you thousands over the course of a year.


Whether to be prepared in advance of a fire or natural disaster such as a flood or tornado—or simply to give your loved ones peace of mind before your death—it’s a good idea to gather and organize your financial information in one safe place, and to tell someone trusted where it is.

Consider investing in a fire-safe lock box and putting originals of all of your financial documentation there. This should include, at minimum:

• Will

• Power of Attorney

• Health Care Directive

• Social Security card

• Deeds and contracts

• Life, health, home, and car insurance policies

• Bank account information

• IRA, 401(k), and other investment information

Be sure to also add log-in and password information for any online bill payments or online accounts.

Another good option is to entrust copies of these documents to a financial advisor or other reputable third party (perhaps the executor of your will). Wherever you opt to keep your financial documents, be sure to keep them safe. You don’t want them to fall into the hands of a potential identity thief.


There are “how-to” books offering budget-living strategies for every walk of life. Go to “books on saving” to find a list of 10 great books on saving and financial planning advice. We also provide their Web sites, as most offer blogs, newsletters, or other information free online as well.

To read Kentucky Living’s 2011 and 2010 Finance Guides to learn more about savings, retirement, and investing, type “finance guide” in the Article Search box.

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