MONEY Savings

Drink That Latte! Here Are 3 Ways to Save and Still Enjoy Life

hands holding latte
Mikael Nyberg—Getty Images/Flickr

It's okay to enjoy to life's little pleasures, as long you have a realistic retirement savings plan.

You’ve heard of the Latte Factor approach to saving: Eliminate small nonessential outlays—like the $5 you spend daily on lattes or other treats—and you can end up with an extra $150,000 or so over the course of 30 years. Well, I have a better idea: Enjoy life’s little pleasures—your latte, Dunkin’ or other indulgences—and focus instead on more realistic ways to build a retirement nest egg.

I’m all for being careful about spending. But the idea that you’re going to end up with a big fat sum by foregoing small treats—in my case, Boston Creme donuts—and investing the money you would have spent on them strikes me as, shall we say, impractical.

For one thing, to get that $150,000, you would have to invest $35 a week and earn a 6% return every year for 30 years. But come on, who has the discipline to sacrifice life’s little pleasures day in and day out for decades—and then follow through by setting aside that $5 every day and investing $35 at the end of each week? Even if you were able to pull it off, do you really want to live like you’re on a perpetual diet?

Fortunately, you don’t have to live like an ascetic to build a retirement nest egg. Besides, it turns out savoring rather than denying yourself little treats is the better way to go anyway. In a paper titled “If Money Doesn’t Make You Happy, You Probably Aren’t Spending It Right,” researchers conclude that many small delights make us happier than a few large ones, noting that “it may be better to indulge in a variety of frequent, small pleasures—double lattes, uptown pedicures, and high thread-count socks rather than pouring money into large purchases, such as sports cars, dream vacations, and front-row concert tickets.”

So how can you drink your lattes—or double lattes—and have your retirement nest egg too? Here are three tips:

1. Focus on big-ticket items. Asked why he robbed banks, career criminal Willie Sutton supposedly answered “because that’s where the money is.” In fact, a reporter made up the quote, but no matter. You should apply that reasoning to saving—that is, target your efforts where you’ll get the biggest payoff.

A quick look at the Department of Labor’s Consumer Expenditure Survey shows the single biggest items in the typical American’s budget is housing. So if instead of buying a $250,000 house, you go with a more modest $200,000 number, you might lower your mortgage, property taxes and insurance costs by roughly $250 a month. Assuming a 6% annual return from a low-cost diversified portfolio over 30 years, you’re talking an extra $245,000.

Other areas that can prove fertile hunting grounds for big savings, include cars, vacations, electronics, college expenses and, of course, investment fees. The actual savings you reap will depend on the particulars of your situation. In the housing example above, I assumed a 20% down payment, 4.2% 30-year fixed mortgage, property taxes and insurance equal to 1.5% of the sales price and ignored income taxes to keep things simple. But the precise number isn’t important. The idea is what matters—namely, that by cutting back on a big expense, especially one you incur regularly like a house or car payment, you can boost the eventual size of your retirement nest egg.

2. Make it automatic. Merely cutting expenses doesn’t guarantee more savings. You also need to make sure that the money you free up by buying a less expensive home or car isn’t simply diverted to new spending. The best way to do that: Lock in your savings by enrolling in your 401(k) or other company payroll deduction plan and contributing at least enough to get the full employer match. If you don’t have a 401(k) or you can also afford to save money outside your employer’s plan, sign up for an automatic investing plan that transfers money from your checking account to a mutual fund every month.

By arranging to have money go from your paycheck or your checking account every month without you having to make a conscious decision to move money to your savings or investment accounts via a phone app, an online transfer or even by writing out a check, it’s more likely that the dough no longer going to expenses will be saved rather than spent on other things.

3. Overcome your fear of commitment. One reason it’s more difficult to save than spend is that spending provides immediate gratification, while saving pays off in the distant future. But there are a number of ways to effectively trick yourself into saving.

One such technique known is a “commitment device,” which is a fancy term for getting yourself to do something you know you should but lack the discipline to pull off on your own. Go to Stickk.com, for example, and you can choose, or commit to, a savings goal of your choice—say, accumulating $500 a month, or $6,000 over the course of a year. If you fail to hit that target, you agree that you’ll pay a penalty—perhaps $100—to a person or organization you’re not especially fond of. If you’re a Republican, for example, that might mean making a contribution to a Democratic candidate. That provides the incentive for you to meet your goal. Or, you can use a carrot instead of a stick. For example, you might reward yourself with a new tablet or smartphone, if you manage to save a certain amount over the course of a year.

Ultimately, you have to find a way to save that makes the most sense for you. But you’ll increase your odds of success, by devising a strategy you’ll actually be able to stick to and thus more likely to lead to a larger nest egg down the road.

Walter Updegrave is the editor of RealDealRetirement.com. If you have a question on retirement or investing that you would like Walter to answer online, send it to him at walter@realdealretirement.com.

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MONEY IRAs

There’s Free Money for IRA Rollovers—Here’s How to Invest It

Should you take the money and run? Only if you choose the right low-cost funds.

Back in the day, you could walk into a bank to open a new account and walk out with a free toaster.

Today, you can get anywhere from $50 to $2,500 for rolling over a 401(k) into an Individual Retirement Account, or just by moving an IRA from another financial institution.

But since banks are not in the habit of giving away money, you need to ask: What is the catch?

IRA providers use cash incentives, which are cheaper than advertising or direct mail, to acquire new customers. The latest marketing twist comes from Fidelity Investments, which is offering an “IRA Match” program to new and existing customers who transfer a Roth, traditional or rollover IRA to the company. Rollovers from 401(k)s are not eligible.

Fidelity will match your contributions up to 10% for the first three years that the account is open, although you would have to roll over a whopping $500,000 or more to get that level of match.

For most people, the match will be much smaller. A rollover of $50,000, for example, would qualify for a 1.5% match in each of the next three years. That is worth $260 over three years if you max out your annual contributions at $5,500, or $290 if you are over age 50 and eligible to make additional $1,000 catch-up contributions.

Fidelity is pitching this as the way to encourage higher levels of retirement savings, the way many employers make matching contributions to workers’ 401(k) plans.

“When you look at what really works in the retirement space, you can see that the employer match is a major factor driving participation,” says Lauren Brouhard, Fidelity Investments’ senior vice president for retirement. “We wanted to take an element of what works in the workplace and bring it to the IRA.”

Similar deals abound. For example, Charles Schwab Corp frequently runs promotions offering up to $2,500 for opening a new account, including rollovers from 401(k)s. Ally Bank will pay a $100 bonus for rolling between $25,000 and $50,000, and more for larger rollovers. Just do a Web search for “IRA cash bonus” to see how pervasive the practice has become.

Should you take the money and run? Perhaps, but do not let the cash distract you from more fundamental considerations.

For starters, do not roll funds out of a workplace 401(k) plan into an IRA if it charges higher fees. You should also make sure that the new provider offers the type of retirement investments you are looking for.

If you are rolling over to a mutual fund or brokerage company, the cardinal rule is to make sure your new provider does not earn back the bonus by parking you in high-cost active mutual funds or managed portfolio services.

“It’s a free lunch, but not if you yield to the temptations,” says Mitch Tuchman, managing director of Rebalance IRA, a wealth management firm that offers low-cost IRA portfolio management. “You have to avoid falling prey to the sirens of active management.”

Instead, manage your portfolio yourself by creating a portfolio of inexpensive passive index funds or exchange traded funds, which are available through their providers’ brokerage services.

To illustrate, he suggested a portfolio of four Vanguard ETFs whose fees are each below 20 basis points: Total U.S. Stock Market, Total International stocks, Total Bond Market and Total International Bond.

You can view Tuchman’s sample portfolios here.

Read next: 5 Signs You Will Become a Millionaire

MONEY Savings

5 Signs You Will Become a Millionaire

150304_EM_MILLIONAIRES
Martin Barraud—Getty Images

A million isn't what it used to be. But it's not bad, and here's how you get there.

A million bucks isn’t what it used to be. When your father, or maybe you, set that savings goal in 1980 it was like shooting for $3 million today. Still, millionaire status is nothing to sniff at—and new research suggests that a broad swath of millennials and Gen-Xers are on the right track.

The “emerging affluent” class, as defined in the latest Fidelity Millionaire Outlook study, has many of the same habits and traits as today’s millionaires and multimillionaires. You are in this class if you are 21 to 49 years of age with at least $100,000 of annual household income and $50,000 to $250,000 in investable assets. Fidelity found this group has five key points in common with today’s millionaires:

  • Lucrative career: The emerging affluent are largely pursuing careers in information technology, finance and accounting—much like many of today’s millionaires did years ago. They may be at a low level now, but they have time to climb the corporate ladder.
  • High income: The median household income of this emerging class is $125,000, more than double the median U.S. household income. That suggests they have more room to save now and are on track to earn and save even more.
  • Self-starters: Eight in 10 among the emerging affluent have built assets on their own, or added to those they inherited, which is also true of millionaires and multimillionaires.
  • Long-term focus: Three in four among the emerging affluent have a long-term approach to investments. Like the more established wealthy, this group stays with its investment regimen through all markets rather than try to time the market for short-term gains.
  • Appropriate aggressiveness: Similar to multimillionaires, the emerging affluent display a willingness to invest in riskier, high-growth assets for superior long-term returns.

Becoming a millionaire shouldn’t be difficult for millennials. All it takes is discipline and an early start. If you begin with $10,000 at age 25 and save $5,500 a year in an IRA that grows 6% a year, you will have $1 million at age 65. If you save in a 401(k) plan that matches half your contributions, you’ll amass nearly $1.5 million. That’s with no inheritance or other savings. Such sums may sound big to a young adult making little money. But if they save just $3,000 a year for seven years and then boost it to $7,500 a year, they will reach $1 million by age 65.

An emerging affluent who already has up to $250,000 and a big income can do this without breaking a sweat. They should be shooting far higher—to at least $3 million by 2050, just to keep pace with what $1 million buys today (assuming 3% annual inflation). But they will need $6 million in 2050 to have the purchasing power of $1 million back in 1980, when your father could rightly claim that a million dollars would make him rich.

Read next: What’s Your Best Path to $1 Million?

MONEY First-Time Dad

How to Avoid Spoiling Your Child

Luke Tepper
One-year-old Luke, having his cake and eating it too

First-time dad Taylor Tepper learns how not to be the kind of parent he fears becoming.

Our son, Luke, recently celebrated his first birthday. Family and friends generously gave the tyke rubber soccer balls, race cars, pegs, hammers, marbles, and chic winter gear. Luke now has more toggle coats than I do.

Luke’s things, like a rebel army, have begun to outnumber my own. He now has nearly a dozen bins filled with plastic and wooden products crafted by large companies and bought by suckers like me. His clothes occupy a spacious three-drawer dresser, while mine are packed tightly in a small closet. He has twice as many pairs of socks as I do. This all feels silly. Give Luke the option to play with an empty milk carton or a fluffy stuffed animal, and he’ll be shaking the carton between his hands like a boy possessed before you can blink. The box carries more value than the toy inside.

As I cleaned up after Luke’s party, I started thinking about the nature of toddlers and their stuff, and I’ve been mulling over a few issues ever since. The first has to do with spoiling. I know that you can’t really spoil a baby—infants’ needs must be met. But am I developing habits of indulgence now that will ossify over time and lead me to spoil Luke when he’s older? Am I setting myself up to be a bad parent? The second issue has to do with the presents themselves, the catalyst of my spoiling concern: there must be a better use for all that money.

The truth about spoiling

On the first question, the experts are clear. “You’re not going to spoil a baby,” says Tovah P. Klein, assistant professor of psychology at Barnard College and author of How Toddlers Thrive. “They need to be comforted and cared for.”

That Mrs. Tepper and I do. We also warm Luke’s baby wipes, pull him around in a red wagon for hours on end, and turn on “Sesame Street” whenever he’s systematically broken us down. My fear is that our good-natured, responsive parenting will morph into something more unseemly as he ages. It’s not a big leap to image a world where I’m cooking a second dinner because 2-year-old Luke is dissatisfied with the first. I shudder when scenes like that unfold in my mind’s eye.

The key thing for me to recognize, says Klein, is that I don’t need to protect my son from unhappiness.

“If you think, my role is to make him happy all the time, or to entertain him, the child doesn’t learn how to handle hard times, like when he’s angry or frustrated or sad,” Klein says. “Your goal as parents is, how do you help him deal with anger when limits are imposed.”

That’s an intuitive point, but one slightly difficult to reconcile with experience. Luke is our first child, so everything is new to us. Call it the Unbearable Lightness of Parenting. So in the next five to 12 months, as he develops a sense of self and forms his own ideas of what he wants, it will be challenging to hold a firm line. How do I know this tantrum isn’t just a test of limits but a true expression of real pain? Will I have the stomach to stay the course?

“He’ll be happy if you love him and let him know you’re there,” Klein told me. “Put up some reasonable limits and help him through those frustrating moments. That is what counters spoiling.”

Children, especially really young ones, crave structure. It’s the lack of it that results in insecurity. So if he doesn’t want to eat what I’ve cooked for dinner, fine. But I’m not frying up another meal.

Getting presents—and other stuff—under control

Limits are certainly in order for all of his toys. Between Christmas and his birthday and well-meaning friends doting on the little guy, we have enough Elmos and plastic cell phones and wooden school buses to open up our own boutique. This overflow of generosity leads to a short-term concern as well as a longer-term one.

In the here and now, the problem is sheer volume. “Children need less material goods,” says Klein. “More stuff tends to overstimulate them.” We already try to highlight only a few options for him to play with, but we’ll resolve to be even more selective going forward. We’ll offer him one bin to tear apart rather than two.

Later on, though, I worry about relying on toys (and ice cream and other objects that cost money) as a means of reinforcement. I don’t want to get into the habit of giving him things all the time so that he’ll do X or Y. Plus, I don’t think I’ll be able to afford it.

“Not every reward has to be a material reward,” says psychologist and parenting expert Lawrence Balter. “Sometimes rewards can be privileges as they get older.”

I was discussing the issue of presents at Luke’s party with a friend from college, and she asked me if we had starting saving for his college fund. (We started a 529, but it’s tragically underfunded.) Instead of toys, she asked, why don’t you ask people to donate to the fund instead?

Which is what we’re going to do from now on. Rather than stuff our bins full of perfectly fine but ultimately useless things, we’ll ask friends and family to chip in to help pay for his insanely expensive education. While that might make the act of gift-giving a little less fun for them, it will help us afford an essential good that will dramatically improve his life.

Plus, it’s one less spaceship for me to trip on in the middle of the night.

More From the First-Time Dad:

MONEY Wealth

The Super-Rich Have a Racial Wealth Gap, Too

Even at the top end of the economic scale, the financial differences between black and white Americans are big — and they've changed little in 30 years.

MONEY Savings

Retirement Savers, Don’t Count on Washington to Protect You

Regulations that would protect the interests of retirement savers are finally gaining traction in Washington. But don't pop the champagne corks just yet.

After years of talk about how to protect retirement savers, the White House has gotten behind a Labor Department proposal that would require financial advisers to put clients’ interests ahead of their own.

Consumer champion Sen. Elizabeth Warren, who says she is not running for president, is doing wall-to-wall media on her view that the government should do more to regulate providers of 401(k) plans, 403(b) plans and individual retirement accounts.

The Supreme Court heard arguments on Tuesday in a case challenging high 401(k) fees.

But savers should not pop champagne corks yet. It takes forever and a day to legislate and regulate in Washington. Even if it ends up on a fast track, the Labor Department’s draft rule is expected to leave a loophole big enough to drive the brokerage industry through.

Labor Department officials have said it would allow retirement advisers to continue selling investments on commission, as long as they disclosed that to clients.

There are several issues involved in regulating retirement investment advice. A primary one is the quality of 401(k) and 403(b) plans. Employers, who have a fiduciary responsibility to provide good plans to their employees, often hand over program management to consultants, who can keep program costs to employers low and jack up investment fees that workers pay when they buy funds in their plans.

A second issue involves the quality of advice investors get on their individual retirement accounts. If the advice is from brokers, there is a possibility investors are being put into mutual funds that carry higher fees than are optimal for them or are in other ways being put into funds that are not right for them. Higher fees may compensate brokers who are paid by commission or may compensate fund companies that spend the extra cash in ways that benefit the brokerage firms that offer their funds. That can result in investment advice that is conflicted.

After years of lobbying by the brokerage industry, the Labor Department is leaning toward a rule that would allow conflicts, such as commissions and fund company payments to brokerages, as long as they were disclosed. So investors take note: you are eventually going to have to read all the small print, so you might as well start now.

Here’s how to protect your retirement savings:

Check your 401(k) plan. Numerous large employers have spent big bucks to settle class action lawsuits focused on mutual fund fees in retirement plans, and fees have fallen. Average annual management fees of 401(k) funds are below 0.5 percent at large companies and below 1 percent at small companies. If your company’s fund choices are out of line, talk to your human resources department. If your only choices are substandard funds and high fees, put only enough in your 401(k) to get the employer matching contributions, and then invest additional funds in a personal IRA or Roth IRA.

Choose inexpensive mutual funds. Investing in low cost index funds instead of costlier actively managed funds will put you ahead. A person earning $75,000 a year who starts saving at age 25 would spend $104,033 in fees over a lifetime if fees were capped at 0.25 percent of assets annually. At 1.3 percent, that same worker would spend $409,202, according to the Center for American Progress. That extra $305,169 could support roughly $1,000 a month for life in extra retirement income.

Separate advice from your investments. If you want help figuring out which funds to invest in, pay a fee-only financial adviser, do not depend on “free” advice from a commissioned broker. You can get inexpensive advice from big fund companies like Vanguard, Fidelity Investments, and T Rowe Price, or from so-called “robo advisers” like Wealthfront or Betterment.

Be especially careful about rollovers. When you leave a job, you typically have the right to keep your money invested in your 401(k), an excellent choice if you work for a company that provides good funds within the plan. Or you can roll it over into a so-called “Rollover IRA” at any brokerage or fund company. Choose a low-fee fund company or discount brokerage that will enable you to choose your own investments from a large pool of individual stocks and inexpensive funds, and buy only the advice you need.

MONEY Savings

4 Surefire Strategies for Powering Up Your Savings

piggy banks of assorted colors on wood surface
Andy Roberts—Getty Images

You can't count on high investment returns forever. Take control of your future with these savings tips.

Welcome to Day 7 of MONEY’s 10-day Financial Fitness program. You’ve already seen what shape you’re in, figured out what’ll help you stick to your goals, and trimmed the fat from your budget. Today, put that cash to work.

It’s been a great ride. But the bull market that pumped up your 401(k) over the past six years won’t last forever. Even though the stock market is up so far this year, Wall Street prognosticators expect rising interest rates to keep a lid on big gains in 2015. Deutsche Bank, for example, is forecasting a roughly 4% rise in the S&P 500, far below last year’s 11% increase.

Over the next decade, stocks should gain an annualized 7%, while bonds will average 2.5%, according to the latest outlook from Vanguard, the firm’s most subdued projections since 2006.

While you can’t outmuscle the market, you do have one power move at your disposal: ramp up savings.

1. Find Your Saving Target

So how much should you sock away? This year Wade Pfau of the American College launched Retirement-Researcher.com, a site that tests how different savings strategies fare in current economic conditions. He found that households earning $80,000 or more must save 15% of earnings to live a similar lifestyle in their post-work years. While that assumes you’re saving consistently by 35 and retiring at 65, it does include your employer match, so in reality, you may be pitching in only 10% or so.

If you weren’t so on top of it by 35, you have a couple of options: Raise your annual number (Pfau puts it at 23% if you start at age 40) or catch up by saving in bursts. Research firm Hearts & Wallets found that people who boosted savings for an eight-to 10-year period (when mortgages or other big expenses fell away) were able to get back on track for retirement.

2. Think Income

New data show that people save more when they see how their retirement savings translates into monthly income, says Bob Reynolds, head of Putnam Investments. The company found that 75% of people who used its lifetime income analysis tool boosted their savings rate by an average of 25%. To see what your post-work payments will look like, check out Putnam’s calculator (you must be a client to use it) or try the one offered by T. Rowe Price.

3. Take Advantage of Windfalls

Don’t let all your “found money” get sucked into your checking account. Instead, make a point to squirrel away at least a portion of bonuses, savings from cheap gas, FSA reimbursements, and tax refunds. Eight in 10 people get an average refund of $2,800; use it to fund your IRA by the April 15 deadline, says Christine Benz of Morningstar.

4. Free Up Cash

Interest rates remain low. If you’re a refi candidate, you may be able to unlock some money that could be better used. Tom Mingone of Capital Management Group of New York suggests using your refi to pay off higher-rate debt. Say you took a PLUS loan (now fixed at 7.21%, though many borrowers are paying more) for your kid’s tuition: Pay that down.

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MONEY Baby Boomers

How to Work Less—Without Giving Up Your Career

Briefcase with fishing lures
Zachary Zavislak

It's called "phased retirement," and it's catching on.

The youngest baby boomers have just turned 50, bringing retirement within sight for the entire generation. But many boomers don’t expect to work at full throttle until the last day at the office. More than 40% want to shift gradually from full- to part-time work or take on less stressful jobs before retiring, a recent survey by Transamerica Center for Retirement Studies found.

It’s a concept called phased retirement, and it’s catching on. Last November the federal government okayed a plan to let certain long-tenured workers 55 and up stay on half-time while getting half their pension and full health benefits. Says Sara Rix, an adviser at AARP Public Policy Institute: “The federal government’s program may influence private companies to follow their lead.”

Formal phased-retirement plans remain rare; only 18% of companies offer the option to most or all workers. Informal programs are easier to find—roughly half of employers say they allow older workers to dial back to part-time, Transamerica found. But only 21% of employees agree that those practices are in place. “There’s a big disconnect between what employers believe they are doing and what workers perceive their employers to be doing,” says Transamerica Center president Catherine Collinson.

So you may have to forge your own path if you want to downshift in your career. Here’s how:

Resist Raiding Your Savings

Before you do anything, figure out what scaling back will mean for your eventual full retirement. As a part-timer, your income will drop. Ideally you should avoid dipping into your savings or claiming Social Security early, since both will cut your income later. If you’re eligible for a pension, the formula will heavily weight your final years of pay. So a lower salary may make phased retirement too costly.

Cutting back your retirement saving, though, may hurt less than you think. Say you were earning $100,000 and split that in half from 62 to 66. If you had saved $500,000 by 60, and you delay tapping that stash or claiming Social Security, your total income would be $66,700 a year in retirement, according to T. Rowe Price. That’s only slightly less than the $69,500 you would have had if you kept working full-time and saving the max until 66.

Start at the Office

If your employer has an official phased-retirement program, your job is easier. Assuming you’re eligible, you might be able to work half-time for half your pay and still keep your health insurance.

Then ask colleagues who have made that move what has worked for them and what pitfalls to avoid. Devise a plan with your boss, focusing on how you can solve problems, not create new ones with your absence. Perhaps you can mentor younger workers or share client leads. “Don’t expect to arrange this in one conversation—it will be a negotiation,” says Dallas financial planner Richard Jackson.

Without a formal program, you’ll have to have a conversation about part-time or consulting work. To make your case, spell out how you can offer value at a lower cost than a full-time employee, says Phil Dyer, a financial planner in Towson, Md.

Giving up group health insurance will be less of a financial blow if you are 65 and eligible for Medicare, or have coverage through your spouse. If not, you can shop for a policy on your state’s insurance exchange. “Even if you have to pay health care premiums for a couple of years, you may find it worthwhile to reduce the stress of working full-time,” says Dyer.

Do an Encore Elsewhere

This wind-down could also be a chance to do something completely different. Take advantage of online resources for older job seekers, including Encore.org, RetiredBrains.com, and Retirement-Jobs.com. You can find low-cost training at community colleges, which may offer programs specifically to fill jobs for local employers. Or, if you want nonprofit work, volunteer first. Says Chris Farrell, author of Unretirement, a new book about boomers working in retirement: “It’s a great way to discover what the organization really needs and how your skills might fit in.”

Sign up for a weekly email roundup of top retirement news, insights, and advice from editor-at-large Penelope Wang: money.com/retirewithmoney.

MONEY Gas

Here’s What Americans Are Doing With the Gas Money They’re Saving

Gas nozzle and money
Tim McCaig—Getty Images

The government's Energy Information Administration estimates the average household will spend $750 less on gas this year. So where's that money going?

Americans are enjoying a nice raise at the moment, in the form of dramatically lower gas prices. The government’s Energy Information Administration estimates that the average household will spend $750 less on gas this year, which is like getting a roughly $1,000 raise, since the savings aren’t taxed. For a little perspective, the 2008 economic stimulus package passed by Congress designed to save America from the worst of the recession sent a maximum of $600 to American households.

The gas price drop means even more to struggling lower-income earners: the bottom fifth of earners spend 13% of their income on gas.

That’s the good news. The bad news? Retailers aren’t seeing much, if any, of that money.

Americans spent $6.7 billion less on gas in January than November, but retail spending actually fell slightly during that span. That means lower gas prices are not acting as a surprise stimulus plan for the economy.

So where is the money going? To the bank.

The Federal Reserve Bank of St. Louis recently reported that Americans’ notoriously low personal savings rate spiked in December, to 4.9%, from 4.3% the previous month. The cash that’s not going into the gas tank is going into savings and checking accounts instead.

Few Americans save enough money, and many have insufficient rainy-day funds. With the recession fresh in their minds, many Americans appear to be more concerned with restoring their severely damaged net worth than buying stuff.

But Logan Mohtashami, a market observer and mortgage analyst, suspects something else might be at play.

“People don’t think the gas price (drop) is a long-term reality,” Mohtashami said. Despite government predictions to the contrary, he says, consumers aren’t adjusting their spending to a new normal, and instead they’re holding onto their cash for the next rise in prices.

Again, that kind of pessimism is sensible, and it’s good for personal bank accounts, but it’s not so good for growing the economy.

How much are you saving thanks to lower gas prices? What are you doing with the “raise?” saving or paying down debt? Planning a better vacation? Driving a gas-guzzler more often? Let me know in the comments, or email me at bob@credit.com.

More from Credit.com

This article originally appeared on Credit.com.

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