Have trouble saving? Take these tips

Here are five painless ways to free up dollars to sock away, whatever your budget.

By Berkeley Rice
Senior Editor

After scrimping through medical school and residency, many doctors starting out in practice feel they deserve everything right now. So they buy the best house on the block and a BMW, and they take expensive vacations. Saving money takes a back seat, particularly if they're still paying off sizable medical school loans. Spending then becomes an intractable habit, and saving doesn't.

That's why, whatever your income and debts, it's not too soon to begin investing for retirement and other long-term goals. Financial planners recommend setting aside 10 to 20 percent of your earnings each year, including retirement plan contributions. But even if you manage to save only 5 percent, it's a start. The sooner you begin, the faster your nest egg will build, because of compounding. In other words, the very age when you think you can't afford to save is the time when saving can do you the most good.

So how will you come up with the money? Here are five ideas. As you'll see, we're not bothering with nickel-and-dime stuff like clipping coupons for groceries or getting half-price movie tickets. We're suggesting steps you can take to save hundreds or even thousands of dollars, without depriving yourself.

1. Trim daily expenses. If you're serious about finding money to save, first find out how you're spending it. One good way to do this is to track expenses with personal finance software such as Quicken or Microsoft Money.* You'd be amazed how many dollars you can free up, simply by taking a good look at your budget.

That's especially true if you've been in practice for a few years. Chances are, as your income has increased, so has your less-than-essential spending. Consider a Manhattan surgeon and his wife who typically spend $1,000 a week entertaining friends in the city's top restaurants. "They can still go to five-star places," says New York City financial planner and Medical Economics columnist Lewis J. Altfest, "but how about two times a week instead of four? And he could split the bill with his companions, instead of always treating them."

After analyzing his expenses, one radiologist was surprised to learn that he was spending $4,000 a year on his two aquariums. In the same year, his wife spent $18,000 on clothes. Another doctor's daughter, who learned that the family was paying $3,000 a year for a maid service, suggested saving that sum by having each family member spend an hour a week cleaning the house.

Cutting expenses in such ways shouldn't involve real hardship. Even if your splurges are much more modest than these doctors', you can undoubtedly find small, relatively painless ways to cut back. Steven Georgeson, a cardiologist in Bridgewater, NJ, says it means "learning to live below your means."

2. Cut back on consumer debt. Young doctors often blame debt for their inability to save, and no wonder: In the most recent Medical Economics Financial Survey, the median debt for doctors under age 40 was $210,000, and three out of 10 owed $300,000 or more. Home mortgages and medical school loans accounted for most of that load, but the typical physician carried $5,000 in credit card debt, and one out of five owed $20,000 or more.

As one 34-year-old FP burdened with $60,000 in credit card debt explains, "Sure, I know better. But I'm already making payments on $240,000 in other loans, and besides, my wife just gave birth." Nevertheless, this doctor is paying thousands of dollars in interest on his credit card debt. That's money he could have invested.

"My wife and I have saved money over the years by never carrying a balance on our credit cards," says H. Avory Grayson Jr., an internist in Plainville, CT. "Their rates are usurious."

If you're in debt and your wallet is bulging with credit cards, cut up most of them, keeping just one for your practice and one for personal expenses. Then pay your current charges in full each month—or if you can't, take another hard look at your spending habits. As for existing credit card debt, if possible, convert it to tax-deductible debt by taking out a home equity loan and paying off your card balance with the proceeds. You can deduct interest on up to $100,000 if you're single or married and filing jointly, and $50,000 if you're married and filing separately.

3. Seek better deals on cars. Hang on to your car for as long as possible, and resist the urge to buy or lease a new one. If you make a lot of short trips and luxury isn't a priority, consider the smaller or simpler model of a good brand. Instead of Honda's Accord, for example, you could choose the carmaker's smaller but equally reliable Civic and save several thousand dollars. You'll save even more because the Civic gets better gas mileage. Plus, many small- and mid-sized imports, such as those from Honda and Toyota, hold their value surprisingly well.

Patricia Raymond, a gastroenterologist in Chesapeake, VA, recommends buying a new car in the fall, when many dealers offer bargains to empty their lots before the new models arrive. "And don't finance the purchase," she says. "If you can possibly afford it, pay cash, and invest what you would have paid the dealer in monthly interest charges."

Because it's simpler, most new car buyers trade in their old vehicles. But depending on the model, year, mileage, condition, and where you live, you may get considerably more than the trade-in value if you sell it privately. Check trade-in or retail values with Kelley Blue Book (www.kbb.com ) or Edmund's Used Cars and Trucks Prices & Ratings ( www.edmunds.com ). Or ask your insurance agent to check those sources for you. Then look up your model in the local classified ads, or on www.autotrader.com or www.autoweb.com . The prices on those sites will be significantly higher than what dealers will offer.

If your car is more than 10 years old, its trade-in or resale value may be so low that you might be better off donating it to a charitable organization and taking a tax deduction based on its fair market value. Among groups that accept cars of any age or condition are the American Cancer Society (888-227-5500; www.cancer.org/carsCure ) or American Lung Association (800-586-4872 www.donateyourcar.com).

4. Cut insurance costs to the bone. If you've bought your insurance policies from various companies, consider consolidating them with one carrier, which can earn you a discount. Raising your deductibles on your home and auto insurance can also cut premiums. For instance, if you up the deductible on your home-owners policy from, say, $250 to $500—meaning you'll pay that much of your loss—you can save 5 to 10 percent on your premium.

As for life insurance, some agents will try to sell you whole life policies because they represent forced savings. You might do better, however, by buying low-cost term insurance and investing the premium difference in mutual funds. And consider a 10-, 20-, or 30-year level-premium policy, which may provide more coverage for your money. For the latest term rates, see www.accuquote.com , www.insweb.com , or www.quotesmith.com .

5. Find bargains on vacation travel. Even diligent savers deserve vacations—and you can take one inexpensively without checking in to a fleabag hotel.

One way to save is by traveling off-season. Instead of going to Europe during the high-priced summer months, visit in the fall or spring, when the weather still can be quite pleasant. You can also save with midwinter trips along California's coast, or spring and fall months in Hawaii. In the Caribbean, prices drop as much as 50 percent in late spring, summer, and fall. Yet on many of those islands, off-season temperatures rise only slightly, to the mid- to upper 80s, and balmy trade winds bring cooling breezes.

Another way to save is to head for countries that have favorable exchange rates. Among the current bargains: Brazil, Canada, Mexico, New Zealand, and Thailand. For example, you could pay 30 percent less for a week of skiing in the Canadian Rockies than you would for comparable accommodations in Colorado. And with the euro down more than 20 percent against the dollar since its launch in early 1999, European travel has become a relative bargain.

To reduce expenses for family vacations, consider camping instead of staying at resorts. "When our children were young," recalls Patricia Elliott, a GP in Rapidan, VA, "we saved money by staying in state parks from South Carolina to Maine. Those trips were more fun and educational than if we'd stayed in motels."

For airfare bargains, try the airlines' Web sites. Or buy through ticket consolidators, which offer wholesale prices for domestic and international flights. Contact ETN, an association of consolidators and discount travel agents, at www.etn.nl/discount.htm, or World Travel Network (www.bestfares.com).

Several places on the Web offer one-stop shopping for airline tickets, hotels, cruises, and other travel bargains. Among the best: Expedia.com and Travelocity.com .

A final note: No matter how much you cut expenses, you haven't really saved if you simply spend the money on something else.

Unless you're unusually disciplined, the safest way to save is by automatic deduction from a paycheck or checking account, before you have a chance to spend the money. You can use automatic deductions to fund a 401(k) plan, a mutual fund, or a money-market account.

The secret to successful saving is making it a regular process. "Don't think in terms of saving what's left after you pay your bills," suggests Mark Spohr, a health care consultant in Tahoe City, CA. "Put your savings aside first, and then spend what's left."

David Cislowski, a cardiologist in Visalia, CA, knows how well that strategy works. "Since my days as an intern," he says, "my wife and I have put 10 percent of each paycheck into savings, first thing. Only after that have we paid for food, rent, and bills. With our savings, we've been able to buy our houses and cars for cash."

*See "Quicken vs Money: Time to upgrade or switch?" Nov. 6, 2000.

 

Berkeley Rice. Have trouble saving? Take these tips. Medical Economics 2001;6:63.