Dear Liz: My husband and I have not had any credit cards for almost 10 years. We just paid off our vehicle with his retirement account. We now owe only for our home. We have no other debt except utilities. I draw a disability check each month, and I keep thinking we should be able to save but have been unable to. We are not extravagant by any means, rarely going out to dinner or movies. What are we doing wrong?
Answer: Well, for one thing, you drained a retirement account to pay off debt. That’s extremely shortsighted, because you incurred unnecessary taxes and perhaps penalties to tap money that should have been left alone to grow. (And yes, it will grow again. Eventually.)
What’s probably happening is that you’re waiting to save until all your other expenses have been paid. That rarely works, because expenses have a mysterious way of rising to meet your income.
You need to turn your priorities around and save first — something out of every paycheck or other money that comes your way.
The best way to do that is to put your savings on automatic, so the money is swept out of your checking account into a high-yield savings account. If you have to make a decision each paycheck to save, you’ll typically find other things to do with that money.
If you try that and find yourself still falling short, it could be because your fixed expenses are out of whack. Often, when people aren’t extravagant but still have trouble saving, the reason is a home or a car that’s eating up too much of their incomes. If you’re spending much more than 25% of your gross income on housing or 10% on your car, you may find yourself having trouble making ends meet.
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