Infographic: What Saving Money Looks Like Over TimeBy Matthew Wheeland - November 30, 2011
What Saving Money Looks Like Over Time
Keeping more of your take-home pay is more than a way of surviving in a tough economy; it can also be a powerful statement about getting off the work-spend treadmill, rejecting the greedy and sometimes even predatory practices of some financial institutions and corporations, and becoming more self-sufficient overall. Here’s what saving more of your money looks like over time.
How Most of Us Spend Our Paychecks Now
The U.S. Bureau of Labor conducts a detailed annual survey on how people spend their money. Here’s what the average consumer’s spending looked like in 2010.
How the Average Consumer Spends Money
- Housing: 38%
- Transportation: 16%
- Food: 13%
- Insurance and pensions: 11%
- Health care: 7%
- Entertainment: 5%
- Apparel and services: 4%
- All other expenditures: 10%
What Saving Money Looks Like
In 2011, Americans saved 5.4% of their disposable income, up from 2.7 percent five years ago. But most financial planners say we should actually be saving about 10 percent of our take-home pay.
- 5.4% of your money=$1,998
- 10% of your money=$3,700
- 5.4% of your money=$9,990
- 10% of your money=$18,500
- 5.4% of your money=$19,980
- 10% of your money=$37,000
- 5.4% of your money=$29,970
- 10% of your money=$55,500
- 5.4% of your money=$39,960
- 10% of your money=$74,000
Where We’re Cutting Back
A survey by the American Express Spending & Saving Tracker revealed that 31 percent of American households are planning to cut back spending in the next few months. Dining and entertainment are among the top ways they plan to spend less.
- 81% Eating at home vs. dining out
- 55% Making better use of the clothes in our closet
- 46% Watching movies at home instead of in a theater
- 42% Purchasing less expensive beauty products
- 37% Waiting longer between salon/barber visits
What Saving in Specific Categories Looks Like Over Time
Whether paying monthly rent or a mortgage, housing costs are by far the largest area of spending for most adults, so it’s more important to identify ways of saving in this area. For some, renting your home can yield better savings over time. But doesn’t renting just mean throwing your money away? J.D. Roth, author of Your Money: The Missing Manual, offers a real-world example that challenges that notion.
Two hypothetical married couples plan to live in two similar homes in the same neighborhood northeast of Seattle.
- Renting a 3-bed, 2.5 bath, 1,840 sq.ft. house monthly price: $1,495
- Buying a 3-bed, 2.5 bath, 1,850 sq.ft. house price: $424,950
- Renting: Monthly rent payments
- Buying: 20 percent down payment; 30-year fixed interest rate of 6.25 percent
The Approximate Monthly Costs
Though the renters won’t see any financial return on their monthly payments, the buyers are facing a 78% more expensive monthly bill. You can also argue that a large portion of the buyers’ payments aren’t going to yield returns. Consider insurance, property taxes, maintenance, and—worst of all—interest on the mortgage that’s “thrown away” each month.
If the renters took the monthly difference ($1175) between renting and buying costs, and put it in a traditional savings account with only 1% interest, they’d save roughly $495,371 after 30 years.
This hypothetical scenario won’t apply to everyone. To see if renting or buying a home is a better option for your own scenario, try running your own calculation using a Buy-Rent Calculator from the New York Times at http://www.nytimes.com/interactive/business/buy-rent-calculator.html.
You probably don’t think about your power bill too much. That’s just the way utility companies like it because they’re raising their rates by an average of 6 percent every year. If your monthly bill is regularly over $100 a month, you should get a few estimates from reputable solar companies to see how much money putting some panels on the roof could save you.
New Jersey: $20,000 in Solar
- Year 3: -$2,500
- Year 10: $46,000
- Year 16: $101,000
- Year 18: $118,001
Long Island, NY: $20,000 in Solar
- Year 3: -$10,500
- Year 10: $24,500
- Year 16: $75,000
- Year 18: $98,909
San Francisco, CA: $20,000 in Solar
- Year 3: -$14,000
- Year 10: $8,500
- Year 16: $41,000
- Year 18: $55,998
If you live in a state with high electricity costs, investing $20,000 in solar can yield greater savings over a 20-year span than putting that $20,000 in a bank with solid interest.
Does Solar Make Sense For You?
Use the solar estimate tool at http://pureenergies.com/us/solar-estimate to find out how much solar would cost in your state.
If electricity is cheap where you live (under $0.12 per kilowatt hour) and there aren’t any solar rebates available for homeowners, solar may not make economic sense for you yet.
If you payback period is under 10 years, however, you should get a few solar estimates.
Secret #1 to Saving Money With Solar
Request estimates for small, medium, and large systems to see what your ROI looks like for each. Sometimes just shaving off a percentage actually makes more economic sense than going whole hog.
Secret #2 to Saving Money With Solar
Many states only allow homeowners to install as much solar as they need, but a few wily homeowners deliberately run up their power bills for a few months before getting an estimate so they can legally install solar systems producing excess energy. Their excess solar power goes into the grid, where utility companies have to compensate them for it. (Note: this is a minority of homeowners).
Secret #3 to Saving Money With Solar
After purchasing solar panels, many homeowners also opt for electric space heaters to eliminate their monthly natural gas costs, too.
Other Ways to Save Money
Question Your Bank
Public outcry may have recently prevented Bank of America and Wells Fargo from charging debit card users a monthly “activity” fee, but consumer watchdogs report the average American is still paying between $500 and $620 every year in avoidable banking costs. Ask your financial institution how much you’re being charged for things like overdraft fees, not keeping a minimum balance, using out-of-network ATM, talking to a teller, and online bill pay services.
If your bank’s fees seem high, switch to a reputable financial institution with a no-fee pledge (Schwab, ING, and Ally have no-fee options) or check out your local credit unions. Make sure any bank you consider is backed by the FDIC. Credit unions should be insured by NCUA or ASI.
Drive Safe, Save Money
Both the U.S. Department of Energy and Edmunds.com recently found that drivers who follow the speed limit and don’t engage in aggressive driving tactics (e.g., rapid acceleration and sudden braking) enjoy anywhere between 12 to 55 percent better gas mileage.
Avoiding excessive idling was also “more important than we assumed,” according to Edmunds, giving a surprising 19 percent boost to fuel efficiency. Guess that’s why UPS doesn’t allow their drivers to make left-hand turns!
Get Smart About Your Smartphone
The average iPhone owner pays about $1,900 a year for their service (considering the device, service contract, and data fees), begging the question: are smartphones financially smart?
In their 2011 “U.S. National Carrier Plan Showdown,” Android Authority recently pointed out it’s possible to get unlimited minutes, texting, and data for as little as $40 or $50 a month these days through providers like Boost and VirginMobile.
Single Versus Multiple Savings Goals
A recent study of 82 families found that families who were given multiple savings goals (e.g., college, health care, retirement) only saved 6.21 percent of their disposable income, whereas families given a single savings goal (i.e. retirement) saved 10.6 percent of their disposable income.
Researchers say multiple goals seem to create a “deliberation” mindset in which people see their goals as competing with one another, whereas a single goal creates an “implementation” mindset, resulting in greater action and higher savings.
makes it convenient and easy to understand and shop for solar energy. offers choices so homeowners can get a free solar estimate however it’s most convenient for them, either online at pureenergies.com or by phone at 1-877-444-4002 — without the need for a home visit. Founded in 2008, has helped thousands of homeowners go solar in over 40 U.S. states. is the winner of a TreeHugger “Best of Green” award and sponsored the first-ever solar deals on Groupon.com. Tell your friends about .
By Dave Llorens