Despite Good Intentions, It’s Hard to Save Money

In our discussion of retirement saving this month, Ruth has posted a few comments relating to the need to cut back on basic expenses so that you have money to save for retirement. Suze Orman couldn’t agree more. Below is her tough love advice about where to cut expenses when you have a tight budget.

Suze’s advice tells us to keep paying contributions to things like health insurance and retirement saving and cut out things like hair, manicures and vacations. Essentially her advice is that we keep paying for important but invisible expenses and cut out the visible signs of wealth. When I first listened to this, I thought, “Well, of course. Doesn’t everyone do this?”

Then, I came across this article:

• “We’d rather go broke before going gray survey finds,” Today Show, March 23, 2011

The survey showed that over 47% of female survey respondents refused to stop their haircut/hair coloring appointments even under economic distress. 57.5% refused to give up discount shopping for apparel and over 61% refused to give up their cable television subscription! Men weren’t much better although had slightly lower percentages in each category.

It made me remember a conversation in my yoga class where a mom indicated that she went gray in college and has been coloring her hair ever since. She had to stop coloring her hair for a brief time when her family was young and they didn’t have the money. “I will never do that again!” she vowed.

I have not had to face this dilemma just yet. About 10 years ago, I was in a stylist’s chair in a nice salon in Washington and was shocked when the stylist ran a comb through my hair and said, “Well, you’re lucky not to have any gray.” All I remember thinking was, “Is this woman crazy? I’m young! Why is she looking for gray hair?” But it turns out that gray hair is relatively common among younger people and likely the stress of Washington living doesn’t help in this regard. People magazine’s “Most Beautiful Woman in the World” this year is Jennifer Lopez, who shockingly admitted that she went gray at 23 and colors her hair every two weeks ever since!

It made me wonder, “If my hair was turning gray and the only way to decently color my hair was at a salon, would I be willing to give that up?” It is a really tough choice. There is such a premium on looking young in female beauty and gray hair before the age of 50 or so is hard on the ego. I guess I would look at what other vanity expenses could go first.

These little ego decisions are a big part of our spending problems and they happen all the time. This weekend, for example, we faced a similar dilemma with our sunroom furnishings. Our sunroom doubles as our children’s playroom/art room and takes a huge amount of abuse. There was paint and glue ground into the carpet and upholstery. We took one look at the mess and thought, “It is time to get new furniture and an area rug.” Our brain calculus looked somewhat like this:

There were a lot more positives than negatives in this option and we were just about ready to load up in the car to go shopping.

But then, we thought about the alternative solution. We could try to clean up the mess and see how things looked at that point. The brain calculus for this decision looked like this:

Cleaning up the furniture required only sweat equity. We would also be burning calories as we cleaned and would be saving the earth by not adding more to the landfills and re-using what we already had. Still, it was going to be a LOT of work and not much fun.

What tipped the balance in the end? It wasn’t so much the thought of spending money that deterred us but rather the prospect that the money would not be well spent. Reality made us factor in the following calculation:

It was the net negative of realizing that with small children mess is inevitable and that new furniture would buy us only a short reprieve from the current mess we were facing that forced the decision to pick up the brushes and start scrubbing. It took hours but in the end the result is really quite nice. Not as nice as new furnishings, of course, but perfectly acceptable for company and very clean.

Saving money has a huge amount to do with our psychology. Ramit Sethi of “I Will Teach You To Be Rich” recently did an interesting piece on spending psychology and tax refunds.

Watch the full episode. See more Nightly Business Report.

Ramit argues that while “experts” tell us not to have a tax refund because we are losing out on interest, the reality is that getting a tax refund is a good way for a lot of people to force themselves to save any money at all.

Many financial experts have come to similar conclusions about helping people save money. While the pure financial analysis on credit card interest rates, for example, may dictate that you pay off your highest interest cards first, many financial advisers find that people will not stick with a savings plan if they don’t see results. So, they advise paying off your lowest balance first, regardless of interest rate, so that you see progress and stay motivated. Getting out of debt imperfectly, they argue, is better than being so overwhelmed by the “perfect” way that you fail to make any progress at all.

Ruly Challenge

I encourage you to take a moment to reflect on the above and think about where you could cut expenses if you had to. What is your biggest extravagance? What do you spend money on that is primarily about preserving outward appearances? Do you need to adopt some psychological techniques to help you improve your financial situation?

Would you be willing to cancel the family vacation, give up cable or go gray to save money? What would be the last expense to go for you? Please share in the comments.