How we're going to save more

It won't be by renouncing all 'frivolous' spending. It'll be by focusing on the big things - and resisting the urge to beat ourselves up.

By Pat Regnier, Money Magazine assistant managing editor
February 26, 2009: 6:17 AM ET

(Money Magazine) -- Sometime last fall, my wife and I began having urgent conversations about putting more money away. It wasn't fun. A typical day went like this: Work. Feed children. Get children to bed. Clean up after children. Look at bank statements and bills. Stress out. Blame each other (occasionally). Sleep. Repeat.

A lot of families have been doing the same thing. According to a December survey by Pew Research Center, 85% of Americans have recently made personal spending cutbacks. Most of those people weren't in immediate financial trouble. Like us, they were just reading the headlines.

Our stab at saving more involved making changes to our daily spending. Impulse purchases on gadgets and new clothes have stopped, and we stick closely to the shopping list every time we hit the supermarket. I'm eating PB&J for lunch. And our savings account has grown by...a whole $75.

It's not the small stuff

What happened? A fat tuition bill from our daughter's private preschool, that's what. The experience brought home for me an observation by Chicago financial planner Mary Claire Allvine: It's the big things that really count.

If you've got a decent income, changing your brand of coffee or being the last person in your zip code to buy an iPod just isn't going to get you very far. To make a real difference, you are going to have to cross out a major line item. The private school. The house with the great address. A parent staying at home with the kids. Or the plan to retire early. These are not frivolous, spendthrift things. Responsible grown-ups can choose among them. It's just that most of us can't choose every single one of them.

There's been much wringing of hands lately about the conspicuous overconsumption of the 1990s and early 2000s. Many people feel that we're simply being punished for buying all those flat-screen TVs. Maybe we could appease the angry money gods with a bonfire of surplus Prada bags.

But guess what. Most Americans really weren't unusually self-indulgent. At the height of the boom, Elizabeth Warren, a Harvard Law School expert on bankruptcy and consumer debt, crunched the numbers. In 2005 the median-income family was spending substantially less of its income on clothing, appliances and food - even after including meals out - than families did in 1972. If it seems as though your closets have filled up with trinkets and baubles, that's partly because that stuff got a lot cheaper relative to incomes. Where the spending really grew was in the big fixed costs, including mortgages, health care, child care and college tuition.

This is not a test

There's no question that the American economy was badly unbalanced over the past decade or so. And, yes, many of us lost perspective about the value of housing. But the vast majority of the people I know, including people I met when I was reporting on the housing bubble in Southern California, weren't after anything more than what my parents tried to get for their family back in the 1970s: a safe home, a good education, a future. Our national character hasn't deteriorated since then, even if lending standards did.

So let's not get caught up in the idea that we must expiate the collective sin of frivolous spending. In this economic crisis, that kind of thinking could lead to some lousy policies. One of the common arguments against a fiscal stimulus is that since overspending got us into this mess, the real cure is for everybody, including the government, to start balancing the books again. Certainly families have to act responsibly - the Regniers are dropping the private school next year. But the economic lesson of the Great Depression is that in desperate times, fiscal austerity by governments just makes things worse. This is a moment for action, not finger wagging.

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The adage used to say, "watch the pennies and the pounds (dollars) will take care of themselves". That's true enough, if you're indulging in a lot of frivoulous spending.

I remember an episode of Grace Under Fire where Grace was having money problems (when wasn't she?) and she remarked that she had money for pizza, it was rent money she was worried about.

One pizza wasn't going to make or break Grace, just as it probably won't make or break you or me. I've been going over my credit card and bank statements to see where I might make some significant differences. Not many but a few.

I read an article recently about a group of couples who met at a restaurant once a month. They started meeting at each others homes, bringing something to contribute to a meal and found they saved money, and had as good a time, if not better, than they had on their restaurant nights.

We all have our pizza issues, but it's probably the bigger things that can be cut out that will make more of a difference in your financial life. Look at your statements with an unjaundiced eye and see where you might make a difference. If you're really honest with yourself, you can see places where you can make a real difference. Not many, but one or two can make a difference.