By George M. Hiller, JD, LLM, MBA, CFP®
If you could save 50% on everything you bought, it would be like doubling your income. While it may not be possible to achieve a 50% discount on all purchases and living expenses, there is usually a way to create significant savings either by spending less than your income or by getting discounts, points or other benefits on your spending. This savings can be put away for a rainy day or used for other purposes.
We live in a world where it is possible to create alternative savings that can help make greater use of your income and other resources. Alternative savings are assets or accounts that are different from what most people traditionally have considered as savings.
Traditionally, savings meant something like a passbook savings account or certificates of deposit at a bank or other FDIC insured financial institution. U.S. savings bonds or Treasury Bills are other forms of traditional savings. Also, money market funds held in a brokerage account or with a mutual fund family are often thought of as savings.
Alternative savings are forms of accounts or assets that do not fit the traditional definition of savings, but nonetheless, are valuable forms of savings in the changing world we live in.
One form of alternative savings is currencies. With interest rates so low you are not penalized much for holding physical cash. What if the bank is closed and the ATM machine is not working (or charges too much) when you need cash, or you just don’t want to have to drive somewhere at night to get needed cash? Why not keep some cash at home in a safe place?
Currencies include US Dollars, but also include Euros, British Pound Sterling, Japanese Yen, or other currencies. The US Dollar has periods of strength and periods of weakness relative to other international currencies. By owning other currencies you can diversify against the risk of a falling dollar. There are many currency exchange traded funds (ETFs) that can be a convenient way to own other currencies and hedge against a decline in the dollar. Nothing says that you have to have all of your savings denominated in US Dollars.
Digital cash or currencies can also be a form of alternative savings. A PayPal account is a good way to have digital savings that can be used to make purchases online or to send money to family and friends. Bitcoin is an innovative payment network and a new kind of money made possible by the Internet.
Gold, silver and other precious metals are another form of alternative savings. While prices of gold and silver can fluctuate, precious metals are a form of wealth that has maintained a store of value since ancient times. Precious metals are also considered a safe haven in the event of economic disasters. Owning physical gold and silver as well as precious metals ETFs or mutual funds makes sense as part of an asset allocation plan and as part of a savings plan.
Frequent flyer programs and hotel frequent guest programs are yet another form of alternative savings. Typically points in a frequent flyer or frequent guest account have an estimated dollar value. For example, depending on the particular program, one point might be roughly equivalent to one cent in value. If you had 100,000 points in a frequent flyer program or frequent guest program it might be equivalent to about $1,000 in value when used to buy airfare or hotel stays with points.
Over time frequent flyer and frequent guest programs tend to devalue their points and in some cases may cause them to expire if there is no activity over a certain period of time. Because of this, it is best to not hoard points, but to use them generally within two years for flights and hotel stays.
Credit cards also may have reward programs redeemable for cash, travel or other consumer benefits. A credit card may offer one point for every dollar charged on the card. Some credit cards offer more points on certain purchases such as for travel, groceries, gas, or other specified categories. Other cards may offer cash back of 1% to 2% or more. Over time these points and benefits add up and can be like having another alternative savings account.
Gift cards can also be a form of savings. Many gift cards are available at a discount to their face value. For example, you may be able to buy a $100 gift card for $90 or less. The gift card may be redeemable for purchases at a certain store or restaurant. If you know that you will be making those purchases anyway why not get discounted gift cards available at many stores and on the Internet. This is yet another way to make your savings go further.
Buying items on the Internet through eBay or other Internet sites may be a great way to create savings. EBay has eBay bucks that can be redeemed on future purchases. Also, many transactions on eBay can be done with no sales tax. Other Internet sites may offer similar benefits.
Creating alternative savings in cash and other currencies, gold and silver, digital accounts such as PayPal, and acquiring points in frequent flyer and frequent guest programs, credit card reward and cash back programs, discounted gift cards, and Internet based transactions for goods and services, all offer ways to save and ways to make your money go further. It requires more thought and effort to utilize these various forms of alternative savings, but that extra thought and effort can be quite rewarding. Over time these alternate savings strategies can result in many thousands of dollars of benefits and value.