How To Be A First Rate Saver

Super Savers

(Photo by Michael F. McElroy)

Newlyweds Derick Pearson and Felecia Hatcher are first-rate savers. Pearson was raised in a large family and taught the importance of saving by his aunt and uncle, Jean and Stan Kennedy. “They taught me how to budget every cent, along with saving for future expenses such as education, vacations, and emergencies,” says the 26-year-old. He also learned from his great-grandparents. “My great-grandmother taught me how to sew. She made all her own clothes, quilts, and pillows.”

Pearson began saving 10% of his income immediately after graduating from Morehouse College in 2007. He now saves half, after taxes, of his $50,000 salary from his full-time job as a marketing manager. Hatcher worked in marketing until the couple started their own frozen dessert business, Feverish Ice Cream, in Miami in 2008. Hatcher says she became more aware of her spending habits when she met her future husband and later got involved with their business startup. By disciplining themselves, the couple has managed to save about $20,000 since April 2009. “We would get contracts for three to six months at a time,” says Hatcher, also 26.  “Sometimes, depending on the client, we would have gaps between assignments that could last a few weeks to a few months. That really made me wake up and become more aware of my spending habits.” Hatcher says about 80% of the company’s profits come from event bookings such as weddings and concerts. She saves 10% to 12% of the $47,000 salary she pays herself from their business. Hatcher says she plans to return to work full-time if the business fails. She and her husband are determined not to fall behind on their savings.

The couple’s plan is simple: Do it yourself, pay more than you owe, and don’t purchase things you don’t need. While society makes us feel as if we need everything right this minute, this Sunrise, Florida-based couple walks a road less traveled: They delay gratification. Pearson, for instance, advocates using public transportation. He believes everyone should use local buses and trains as much as possible. “Don’t be embarrassed to take public transportation,” says Pearson. “I didn’t have a car until 2009. I’ve used public transportation since high school.”
The couple also analyzes their budget, looking for ways to cut back, no matter how small. By cutting his own hair, for example, Pearson saves $50 each month. He also makes sure to take care of his health. “I learned that staying in shape lowers healthcare and clothing costs. I don’t shop for clothes very often, maybe once a year. I still have clothes from high school and college.” Hatcher concurs. “I don’t pay for a gym membership,” she says. “I think it’s a waste of money when you can easily go for a run or walk. I bought a really good workout application for my iPhone for $10, and I download free workout videocasts on iTunes. I’m part of a community yoga class that only costs $4 a class with some classes offered for free.”

The couple also knows how to handle credit.  “I pay more than the minimum on my debt to eat into the principal,” Pearson says. “Lowering the principal and the amount of debt lowers my interest payment. While many people think they’re paying down a debt, they’re really only paying the interest.” The couple also makes sure they don’t give in when they receive a credit card holiday. “Some card companies don’t want you to get ahead in payments, so they might send you a notice that you don’t need to make a payment next month,” says Pearson.

Wearing clothes you’ve had since high school and college? Advocating public transportation? Forgoing gym memberships? The couple definitely doesn’t have a problem trying to keep up with the Joneses. “There’s nothing wrong with living a simple lifestyle,” says Hatcher. “It doesn’t mean that you’re struggling. It just means doing things like keeping the happy hours with co-workers to a minimum and eating out less. Spend money on things that will last, and make do with what you have.”

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Develop a strategy. When it comes to paying revolving debt, Pearson pays more than the monthly minimum so he can lower the principal or unpaid balance on the loan. He says he does this because financial institutions make their money off of the interest they charge customers, and are therefore quite happy if it takes a borrower a long time to pay off debt.

Spend wisely. Control your urge to spend, and when you do buy something, search for deals. Use coupons and Websites that advertise discounts. Exercise self-restraint, or make it harder to gain access to your money. Hatcher, for example, opened up a savings account with her mother and designated herself as the beneficiary, which means she can put money in but can’t take any out. She also has an E*Trade money market account. It takes three to five days to transfer the money to her bank account, and by that time her urge to spend is gone.

Live a healthy, simple lifestyle. Make sure you’re in good health. If you don’t know the status of your health, make an appointment with your doctor immediately. Knowing what you need to work on could cut down on doctor’s visits and reduce health risks. As for living simply, the couple is also part of a dinner group that eats at a different couple’s home once a week. Eighty dollars feeds six people, and the next week they eat free at the home of another neighbor in the group.

This article originally appeared in the February 2010 issue of Black Enterprise magazine.