Reducing spending in three common budget categories may significantly boost your ability to save money.

Those are the findings of two studies investigating the spending habits of better savers and the psychology of saving.

Here’s how to apply these habits to your own budget.

MOVING FROM A

‘LOW’ SAVER TO A

‘MIDDLE’ SAVER

Research conducted by the Employee Benefit Research Institute and J.P. Morgan Asset Management, published in June 2020, aimed to determine why some American adults save more than others, even when they have equivalent salaries.

For long-term employees, across age groups, the study showed that high savers save around 3% more than middle savers. And middle savers save about 3% more than low savers. Here’s how the researchers defined low, middle and high savers:

∫ Low savers save about 2%-3% of their salary.

∫ Middle savers save about 5%-6% of their salary.

∫ High savers save about 9% of their salary, and more as they get older.

THE DIFFERENCE IS NOT A MATTER OF INCOME

It’s often believed that low savers save less because they simply don’t earn enough. However, in this study, middle savers and low savers have “very similar, if not the same salaries,” says Katherine Roy, chief retirement strategist for J.P. Morgan Funds and one of six authors of the study.

“So they’re earning the same, but it seems like the middle savers somehow are able to save 3% more than the low savers,” Roy adds.

And that 3% boost in savings “is huge,” she says. It could explain why the retirement plan balances of employees who are middle savers are almost twice as large as those of employees who are low savers.

BETTER SAVERS SPEND LESS MONEY IN 3

CATEGORIES

Where did low savers spend more of their money than middle savers? Three categories of expenditures, as a percentage of salary, rose to the top:

∫ Housing, including a mortgage or rent, taxes, utilities, and home services and furnishings.

∫ Food and beverage, including eating out and groceries.

∫ Transportation, including the purchase of vehicles, gasoline, train tickets and so forth.

A high cost of living, such as having a home in New York or San Francisco, did not seem to be a factor in why low savers were spending more in these categories than middle savers, Roy says.