You’ve probably noticed lower gas prices the last few times you’ve filled up at the pump. As crude oil prices continue to fall due to supply glut and weak demand, consumers are paying less to fuel their cars.
Here’s a chart of recent prices from GasBuddy.com:
Source: gasbuddy.com
Take this opportunity to put some of the money you’re not spending on gas, into savings.
Researchers at the National Bureau of Economic Research released a paper entitled “Self Control and Commitment: Can Decreasing the Liquidity of a Savings Account Increase Deposits?” The study deals with self-discipline and saving money, topics I comment on quite frequently.
Is now a good time to sell stocks? Probably so. If you’re less than 15 years away from retirement and have heavy exposure to equities in your portfolio, consider moving some of that into bonds (or even cash).
But for those with a longer time to wait, a little rebalancing may still be in order. The main caveat is don’t go wild with it. It’s easy to get carried away trying to time the market perfectly. You will never get it right 100% of the time, and you can often be so far off that the losses wipe out the wins.
The stock market has been overvalued for 2-3 years now, depending on which method of valuation you believe. If you had gone short 3 years ago, that position would be decimated by now. In the long run, stocks will mean regress, but the long run can be longer than any of us can survive.
The moral of the story: don’t make a big, giant mistake that wipes out all the small wins you’ve steadily made along the way. Persistence + discipline = results.
For my regular readers, this will come as no surprise. From CNN Money:
Roughly half of Americans are saving 5% or less of their incomes, including 18% that are not saving anything, according to a survey from Bankrate. Only about a quarter of people are saving more than 10% of their earnings.
I have a problem with the way they presented the survey, lumping people saving >5% in with those saving nothing. Making the transition from non-saver to saver is the most important step you’ll ever take in your financial life, even if you’re only saving 1%. Saving small is a starting place; in time, as you develop better habits and are able to watch your savings grow, it will be easier to save a larger portion of each paycheck.
It seems like up until a few years ago, personal finance literature focused on getting people to give up overpriced luxury items like Starbuck’s coffee.
The argument went like this: if you buy 5 of those lattes a week at $4 each, that’s $1,040 per year you’re spending on coffee. If you contributed that $1,040 to your IRA instead, after 40 years you’d have $222,154. Therefore, giving up coffee will make you $222,154 richer. Case closed.
The math is alluring, but somewhere between theory and reality there’s a breakdown. My favorite retort to this kind of logic is the following from Reddit:
From CNN Money:
They amount of money in the savings plans grew to a record $248 billion in 2014, about 9% more than the previous year.
People are starting to save for their children earlier than ever. About 31% of the savings plans are opened by parents when their child is barely a year old, or before, according to the College Savings Plans Network.
Given the poor quality of most people’s saving habits, this is worth celebrating. Although, I do question how good of an investment a college degree is for many people.
There has been talk recently about doing away with tax-beneficial 529 Plans. The government wants all the money it can get. I’d say this is more likely to happen than doing away with IRAs or 401(k)s, but still pretty unlikely, especially in light of how many people are taking advantage of them.
If you have kids, a 529 savings plan (NOT pre-paid tuition) is a good option for saving up for college. Money is about possibilities, so even though college isn’t right for everyone, you want to have the possibility to buy it for your kids should they so choose. And without saddling them with student loan debt they’ll never be free from.
When you think about it, there are lots of ways to put money into savings:
You could deposit money into a savings account manually.
You could automate the process so that part of your paycheck is put into a savings account each month.
Et cetera.
Here’s my favorite way. (It could actually be thousands of different ways: it’s an open-ended invitation)
