6 saving secrets from 'Frugal Fanny'
One member of the Women in Red has drawn praise for her ability to save while providing a high-quality life for her family on one income. Here she shares the secrets of her success.
By MP Dunleavey
Editor's note: Join columnist MP Dunleavey and a group of women as they seek to strip away the myths around money, liberate themselves from debt and find financial sanity. Follow the ongoing quest of the Women in Red every other Wednesday in Dunleavey's column on MSN Money.
When Anna first joined the Women in Red, she used to joke that her nickname was "Frugal Fanny."
While I believed her, I didn't really appreciate how little she spent -- and how much she saved -- until I wrote about her retirement situation earlier this spring. (See "One earner, two retirements? Yikes!")
Even the financial planner who reviewed Anna's strategy was in awe of her savings prowess -- especially because Anna is supporting her husband and young daughter in the pricey Washington, D.C., area on a single income of about $65,000.
Soon readers were clamoring to know her secrets as well: How does Anna do it?
So I decided to find out.
The secrets of her success
I have an ambivalent relationship with frugality myself. Some days I aspire to a life of financial purity and austerity -- one in which I rise above all my earthly cravings, drive a 20-year-old Volkswagen and die with the words "secret millionaire" carved on my tombstone.
The rest of the time I fantasize about being Paris Hilton -- while forcing myself to be as financially prudent as I can be in the real world.
I suspect this is where most of us live: torn between the spendy little devil who sits on one shoulder and the fiscal angel on the other.
Not Anna. To my surprise, her nonconsuming lifestyle doesn't require an endless internal tug-of-war over what she wants versus what she can afford.
Like a lot of naturally economical people, Anna's financial behavior is guided by a set of internal priorities -- rather than external desires like keeping up with trends or buying what everyone else has. Thus, material whims that don't match her goals never become the itchy sources of temptation many of us struggle with.
Bucking the spending trend
Anna isn't a paragon of financial perfection, let me just say -- and I'll elaborate on that later. But her financial success stems from the fact that her decisions run counter to the way research shows the average American behaves with their money:
* Most people save very little of their disposable income -- especially when it comes to retirement. Anna socks away 15% of her monthly gross for retirement (about $812), and saves another 4% per month (about $200) for irregular expenses.
* A growing number of Americans view debt as a lifestyle choice, according to a Robert Manning, author of "Credit Card Nation," living on as much as 120% of their incomes. Anna has no personal debt besides her mortgage; her committed expenses come to only 73% of her income.
Where Anna's $5,416 monthly income goesCategory % of income Specific expenses Total monthly cost
Committed
74
Taxes, health co-pay, etc.
$1,191
Groceries (includes diapers)
$800
Utilities
$500
Phones (land, cell)/Internet
$200
Mortgage
$1,100
Car insurance
$80
Gas
$120
Irregular
4
Travel, camping gear, car repairs, etc.
$213
Fun
7
N/A
$400
Retirement
15
N/A
$812
TOTAL MONTHLY EXPENSES
100
$5,416
Anna's game plan
But when we spoke, Anna faulted herself for not saving more and, after reviewing all her monthly expenses, said it was time for her and her husband to see how they might reduce their bills for utilities, telephone and Internet.
Anna's husband works a couple of days a week at a part-time job that pays for his incidental expenses. But for the past 18 months his main job has been as primary caregiver for their daughter -- a contribution with a value of about $15,000 per year in the D.C. area.
They still took a hit when the baby arrived, with the result that "we've spent almost all our personal savings," Anna says. "But it looks like I'm getting a raise soon, and I plan to put a chunk of that into an ING account" to rebuild long-term savings.
While an entire thread on the WIR message board speculated about the exact breakdown of Anna's monthly budget, the real secret to her financial strategy starts with her brain, not her bank account.
According to John Lastovicka, a professor of marketing at Arizona State University who studies frugality in America, being frugal isn't the same as being cheap or stingy -- it's about valuing long-term goals over short-term thrills.
Anna couldn't have summed up her philosophy better herself. Here's a peek inside her playbook:
1. Money is for living, not spending. When Anna was growing up, her European-born parents raised their kids on triple coupons, hand-me-down clothes and a trip to Italy or Germany every summer to visit family. This shaped Anna's earliest and strongest belief that living modestly leads to a higher quality of life, if you spend your money accordingly.
2. Never go into debt if you don't have to. Unlike many Americans, Anna has never:
* owned a credit card (she uses an American Express card when necessary),
* taken out a car loan,
* borrowed against her home.
She hasn't even had to cope with heavy student loans, because she attended a state university and got a free ride for her graduate engineering degree at MIT. "All that made a big difference in my cash flow," she says.
The result of being almost entirely debt-free during her adult life is that Anna has been able to save her money for what she really wanted: about $20,000 for a down payment on her home and about $5,000 for her maternity leave two years ago.
3. Don't deprive yourself. Anna is not a monk, and she doesn't live in a cave. Au contraire, she loves happy hours and eating out. She just doesn't indulge in them every week. But friends are always a priority. "In our circle, people have a lot of (potluck) parties," she says. "But I would never go shopping with friends as a social thing."
4. Steer clear of spending traps. After her daughter was born, Anna joined a mothers group that met for lunch at a nearby mall. "It was like going into the devil's den," she said. "I had to make a conscious effort to walk into the café for lunch and then back to the parking lot afterward."
See? Even the frugal have moments of weakness -- they just know how to handle them. "I don't put myself in a position where I see things I'm going to buy. That's not the way I'm going to spend my time," she says.5. Beware of bulk buying. Anna has always been suspicious of the so-called big box discount stores, and after a friend loaned her a Costco card she feels even more justified. "I spent $200! If I don't go to those places, I won't spend that money." Although most of it was spent on diapers and other necessities, "I didn't do much better than I would have with a coupon at Safeway," she says. "It's really just a way to get you to spend money on a ton of stuff you don't need."
6. Avoid comparisons. When I asked Anna how she coped if, say, a friend mentioned a fabulous purchase or described how they were redoing their kitchen, she just laughed. "I never pay attention to that stuff." It's not that she's oblivious to the delightful ways others choose to spend their money, but she refuses to let that spark the seeds of discontent. "I like going to nice houses, and sometimes I think, 'One day we'll replace our couch.' But mainly I just feel lucky to have my own cute house," she says.
She's not perfect
While working with Anna on this article, what I found most interesting wasn't so much her saving success, but the fact that she achieves so many important financial goals despite being so very human.
* Like most people, she had to be pushed to think through her actual expenses -- and was surprised by how much she spent when she did all the numbers.
* She's worried about how to pay for upcoming expenses, like some weddings she has to attend. And she is crossing her fingers that her raise comes through soon.
* Like most married folks, she and her husband have trouble staying in synch about their day-to-day expenses and their long-term goals. (He still thinks "plan" is a four-letter word.)
* She's terrible with financial paperwork and hates filing her expense reports at work.
Still, what makes Anna a bit of a hero in my eyes is that she doesn't let minor failings stand in the way of making steady progress on bigger issues -- a quality we should all aspire to.
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