The Psychology of Saving S...selves — we may be able to boost our savings rates. The Psychological Advantage of Saving Once you commit to savings, there’s a good chance that you’ll

SEPTEMBER 2015

The Psychology of Saving

S aving money sounds simple,and in many ways it is. Yousimply set aside a portion of

what you earn on a regular basisand watch your money grow. As aresult, you’re more prepared foremergencies, feel more financiallystable, and are better able to achievethe things you most want. But inreality, saving is a little more com-plicated. Sometimes, our ownminds seem to work against uswhen it comes to setting aside someof the money we earn. That’s why a basic understanding of the psy-chology of saving can help youovercome roadblocks and get closerto your goals.

Why It’s Hard to Save What is one of the biggest

obstacles most people face when it

comes to saving? We tend to preferthe certainty and immediate gratifi-cation of short-term rewards overthe potentially greater — yet per-haps more uncertain — benefits oflonger-term rewards. For example,one study found that most adultswould prefer to have $50 todayrather than $100 two years fromnow.

Part of the difficulty people facewith saving for long-term goals isthat people may tend to think oftheir future selves as different or

Consider These Factors before Switching Jobs

W hen considering a job switch, it’s tempting to just look at the differ-ence in salary between the two positions. But before deciding

whether to change jobs, you should consider many factors, including:

4401(k) plan — 401(k) plans are becoming increasingly important tohelp fund retirement, so you should thoroughly review each plan

before making a job switch.

4Health insurance — How much of your health insurance premium doyou pay at each employer? How does the coverage compare? What

out-of-pocket expenses are you likely to incur?

4Other fringe benefits — Thoroughly compare the fringe benefit pack-age at each employer, looking at vacation days, sick days, life insur-

ance, disability insurance, dental and optical insurance.

4Commuting costs — How far is each job from your residence? Willthere be additional commuting costs involved? Will you have to spend

additional time away from your family commuting?

4Advancement opportunities — While this is difficult to quantify, whatare the advancement possibilities at each job? mmm

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U C C E S S

separate from their current selves.That disconnect can make it hard to prioritize saving for the future.Researchers studying this issuelooked at whether encouraging peo-ple to think of saving for retirementin terms of a social responsibility totheir future self rather than in termsof their basic self-interest wouldlead them to save more. The studyfound that the former appeal led tohigher savings rates. In a relatedvein, another group of researchers

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Copyright © 2015. Some articles in this newsletter were prepared by Integrated Concepts, a separate, nonaffiliated business entity. Thisnewsletter intends to offer factual and up-to-date information on the subjects discussed but should not be regarded as a complete analysis ofthese subjects. Professional advisers should be consulted before implementing any options presented. No party assumes liability for any lossor damage resulting from errors or omissions or reliance on or use of this material.

Robert W. Baird & Co. does not provide tax or legal services.

Robert W. Baird & Co. IncorporatedPrivate Wealth Management200 Public Square, Suite 1650Cleveland, OH 44114Toll-free (888) 792-9821Fax (216) 737-7370www.rwbaird.com Member SIPC

John KraftSenior Vice PresidentFinancial [email protected]

Brian KurtzDirectorBranch [email protected]

Steve MilvetFinancial [email protected]

Diane DawsonClient [email protected]

Sandy SantanaAssistant Vice PresidentCS [email protected]

found that seeing pictures of theirfuture selves encouraged people tosave more.

In fact, there are number ofstudies that suggest changing ourmentality — either about the futureor about saving in general — mightallow us to set aside more money. Arecent study found that people whoadopted a cyclical mindset to savingfocused on making saving a routinein the short term saved more thanpeople who set more ambitiouslonger-term goals. Those with a tra-ditional linear mindset saved about$140 over two weeks, while thosewith a cyclical mindset saved $223over the same time period. Overall,the evidence seems to suggest that ifwe can change the way we thinkabout the future — and our futureselves — we may be able to boostour savings rates.

The Psychological Advantage of Saving

Once you commit to savings,there’s a good chance that you’ll seea psychological boost from doing so.A 2013 survey by Ally Bank foundthat 38% of people with a savingsaccount reported being extremelyhappy, compared to only 29% ofpeople who didn’t have a savingsaccount. That same survey foundthat 82% of people reported thatsaving made them feel independent.Those feelings of success, well-being, and independence may inturn lead to even more saving. Infact, feeling powerful and havinghigh self-esteem can lead people tosave more, perhaps because increas-ing their net worth and financial sta-bility helps people maintain theirpowerful feelings.

There might even be a formulafor spending and saving that couldlead to more happiness. Ryan How-ell, a professor of psychology at SanFrancisco State University, found that

The PsychologyContinued from page 1

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happy people tended to demonstratea particular pattern of spending andsaving, earmarking 25% of theirmoney for savings and investments,allocating 12% to charitable givingor gifts to others, and spendingabout 40% on life experiences thatthey considered meaningful.

While our mental quirks mightsometimes make saving difficult,being aware of the obstacles ourmind creates can help us find ourway around them. And in turn, thatmay lead to greater savings andincreased happiness overall.mmm

Bond Investing Tips

C onsider the following tips if bonds are part of yourinvestment portfolio:

4Determine your objectivesbefore investing. Decide

how much of your portfolio youwant invested in bonds.

4Diversify your bond hold-ings among different bond

types. Consider government, cor-porate, and municipal bonds, aswell as different industries, creditratings, and maturities.

4Understand the risks thataffect bonds. The most signif-

icant risk is interest rate risk.When interest rates rise, bond values fall, while values rise wheninterest rates decline. Other risksinclude default risk, or the possi-bility the issuer will redeem thebond before maturity; and inflationrisk, or the possibility that inflationwill outpace the bond’s return.

4Choose bond maturity datescarefully. When you’ll need

your principal is a major factor, but the current interest rate envi-ronment may also affect your deci-sion. Rather than investing in onematurity, you may want to staggeror ladder the maturity dates inyour portfolio.

4Follow interest rate trends.At a minimum, follow the

prime rate, Treasury bill rates, andTreasury bond rates. Understandthe significance of the yield curveand track its pattern over time. Bymonitoring current interest ratelevels, you will be able to evaluatethe appropriateness of an interestrate for a specific security.

4Compare interest rates forspecific bonds before invest-

ing. Interest rates can vary sub-stantially among different bondtypes and among bonds with dif-ferent maturities or credit ratings.

4Research a bond before purchase. Review the credit

quality, coupon rate, call provi-sions, and other significant factors.Determine whether the bond isappropriate for you in terms ofrisk, return, and maturity date.

4Consider the tax aspects.By comparing the after-tax

rate of return for various types ofbonds, you may be able to increaseyour return. Depending on thebond, the interest income may befully taxable or exempt from feder-al and/or state income taxes.

4Review your bond holdingsperiodically. Evaluate the

credit ratings of all your bonds atleast annually to ensure the qualityhasn’t deteriorated. Also, ensureyour holdings are still consistentwith your overall investmentobjectives and asset allocationplan.

4Call for assistance with yourbond holdings. You should

use carefully designed strategies tomake bond decisions. Please call ifyou need help. mmm

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coffee drink? Cut the habit (or, ifthat’s too hard, limit it to two orthree times a week). Set aside themoney you would have spent in ajar and watch your savings grow.

4Repair, don’t replace: It’s easyto toss a slightly worn or dam-

aged item and buy a new one toreplace it. But many of the items wethrow out can actually be repaired.Find a skilled shoe repair person,quality tailor, experienced uphol-sterer and furniture repair person,and other professionals to spruceup items that need a bit of repair.By purchasing quality items andtaking good care of them, you’lllikely save yourself money in theend.

4Use coupons: Clippingcoupons may seem distinctly

old-school. Fortunately, you cannow take advantage of coupon savings without having to spend an entire Sunday morning sortingthrough newspaper inserts. Whenshopping online, always do a quicksearch for online promo codes andcoupons before hitting buy. Or signup for your favorite grocery store’srewards program and enjoy seam-less savings.

4Review your insurance pre-miums: Raising deductibles or

bundling policies could save youmoney. Also, make sure you actual-ly need the insurance you have —cell phone insurance and warrantiesare often a waste of money. Finally,make sure you’re getting all the discounts you qualify for, like carinsurance premium reductions forbeing a safe driver or homeownersinsurance discounts for having analarm system.

Looking for more ways to boostthe amount of money you save?Please call for help analyzing yourbudget and identifying ways to cutyour expenses and save more ofwhat you earn. mmm

10 Ways to Boost Your Savings

B y embracing some simplelifestyle changes or takingfull advantage of tax perks

and other savings incentives, youcan easily boost the amount of cashyou save. The result? You’ll be morefinancially secure and better able toreach the goals you have for your-self and your family. Here are someideas to get you started.

4Take advantage of savingsperks: If you contribute pre-

tax earnings to a 401(k) plan or IRA,you’re saving money beyond youractual contribution amounts. Sayyour monthly gross pay is $5,000per month. You currently don’t con-tribute to a 401(k) plan. You decideto start saving 3% each month (or$150) in your employer’s 401(k)plan. This $150 comes out of yourpaycheck pretax, which means thateven though you’re saving $150,your paycheck only shrinks by $112 — in other words, you’ve save$38 a month on taxes, or $456/year.Another way to save? Make sureyou’re contributing enough to getyour employer match, since this is a great way to increase your savingswithout actually shrinking yourtake-home pay.

4Get your benefits: Youremployer may offer benefits

beyond a 401(k) plan that couldsave you money. Flexible spendingaccounts are common benefits that allow you to set aside pretaxincome for out-of-pocket medicalexpenses. Some employers even

offer discounts on gym member-ships or other services. Take themoney you save by participating in these programs and use it toboost your retirement or emergencysavings.

4Cut recurring expenses:Monthly subscription plans,

streaming entertainment services,gym memberships you don’t use —these regular costs can add up.While some may be worthwhile,trimming the fat in the area ofrecurring expenses can help yousave more. For example, take yourcell phone bill. Could switching to adifferent plan save you money? Doyou need the premium cable pack-age? How often to you listen tosatellite radio? Keep what you actu-ally use and drop the things youdon’t use.

4Buy generic: Do you alwaysbuy the name-brand version

of a product? If so, you might bewasting money. In many cases, thegeneric version is just as good — ifnot identical to — the pricey, brand-ed version. Take it from the experts:a recent survey found that chefsfavor generic versions of bakingmixes, sugar, and tea; while doctorswere happy with generic versions of over-the-counters medicines likeaspirin and ibuprofen.

4Make it automatic: Not surewhere your money goes each

month? Automate your savings soyou don’t have to think about set-ting aside extra cash. Chances areyou won’t even miss that money.

4Be generous: If you itemizeyour taxes, make sure you’re

keeping track of all charitable dona-tions — from checks you write tothe value of that box of gently used clothes you just dropped off at Goodwill. You can deduct thecontributions you made to eligiblecharities come tax time, allowingyou to save (or give) a bit more.

4Cut one habit: Do you indulgein daily soda or an expensive

Life Insurance Tips

Financial Thoughts

Distributing Your Estate to Grown Children

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4Don’t rely on rules of thumbwhen deciding how much life

insurance you need. Go through adetailed analysis of your needs.

4Evaluate who should own theinsurance policy, which deter-

mines whether the proceeds will besubject to estate taxes.

4Select beneficiaries with care,being sure to name contingent

or back-up beneficiaries.

4Before deciding on a specifictype of life insurance policy,

review all available options.

4Look for ways to reduce premi-ums by meeting certain criteria.

4Don’t purchase cash-valueinsurance unless you plan to

own the policy for at least 10 years.

4Check the financial rating ofyour insurance company peri-

odically to make sure its financialstatus has not weakened.

4Don’t replace an existing lifeinsurance policy without first

evaluating the consequences of surrendering the policy.

4Review your life insurancepolices every couple of years.

This review gives you a chance toevaluate the policy’s performanceand whether your needs and/or circumstances have changed. mmm

E ven though your childrenmay now be grown, they areprobably still the center of

your estate plan. Just because theyare adults doesn’t mean you haveto leave their entire inheritance tothem outright. Consider these factors first:

4Do you want to distributeyour estate gradually? If sub-

stantial assets are involved, youmay want to set up trusts to distrib-ute your assets gradually, such as inthirds when each child reaches age25, 30, and 35. You can always givethe trustee power to make early distributions for specific items.

4Have you selected a trusteecarefully? If trusts are

involved, you want a trustee who is impartial and will deal fairly with all your children. Think twicebefore naming one of your childrenas trustee. One sibling in a positionto decide what happens to othersiblings’ inheritances can cause dis-agreements among siblings.

4Have you thought about theconsequences of a child

divorcing? You probably don’twant a portion of your assets dis-tributed to an ex-daughter-in-law orex-son-in-law, so special provisionsmay need to be added to trusts.

4Have you considered howassets will be distributed

among children? Perhaps one childis better off financially than yourother children. Do you divide yourestate equally or give less to thefinancially well-off child? Childrenoften feel a right to an equal shareof their parents’ estate, even if theyhave a substantial estate of theirown.

4Do you need to make specialdistributions to even out

inheritances? Perhaps you havepaid all college costs for some chil-dren, while other children have notattended college yet. You may wantto ensure that all children receive acollege education, and then distrib-ute the rest of your estate equally.

4Should you coordinate yourestate plan with your chil-

dren’s estate plans? If your chil-dren have substantial estates of theirown, it may not make sense to leaveadditional assets to them. Theymay prefer those assets go directlyto their children, helping to mini-mize family estate taxes.

4Have you explained the needfor estate planning to your

children? Especially if you are leav-ing a substantial estate to your chil-dren, they may need to plan theirown estates. You don’t need to dic-tate what they should do with theirestates, but gently remind them whythey need an estate plan. mmm

F iling just a single claim afteran automobile accident can

increase your auto insurance pre-mium by an average of 41%.These rate increases usually takeeffect only if the accident is yourfault, ranging from a high of 76%in Massachusetts to a low of 22%in Maryland. Two accident claimscould double premiums at renew-al time (Source: Insurance-Quotes.com, 2015).

In a recent survey, 53% of

respondents said they wanted toown their own business someday,23% said they were considering it,17% said they already owned abusiness, and 7% had no interestin owning their own business(Source: Money, March 2015).

The top challenges faced bybusiness owners are economicuncertainty, cost of insurance, andinability to access capital (Source:Money, March 2015).

Approximately 54% of com-

panies offer phased retirement toat least some workers, while only18% of companies offer phasedretirement to all or most workers(Source: Transamerica Center forRetirement Studies, 2014).

Approximately 90% of work-ers with a workplace plan havesaved for retirement, compared to20% of workers without a work-place plan (Source: EmployeeBenefit Research Institute, 2014).mmm­­