Affluent Got That Way Dollar By Dollar More Likely To Drive Chevy Than Lexus; Charge Using Sears Card

Paul Merriman says it takes a lot more than money to be affluent.

Surprisingly, he says that the affluent - not to be confused with the wealthy - aren’t all doctors and lawyers.

“You’ll find more firefighters and fewer doctors than you might expect,” he says.

Their lifestyle choices may surprise you as well, he says. Their car of choice is more likely to be a late-model Chevrolet instead of a new BMW or a Lexus.

If you think they’re the type to flash a platinum credit card, you couldn’t be further off base. They prefer plain old Visa or MasterCard or, even better, a Sears card. Yes, Sears - a store that appeals to their sense of frugality.

And that’s the key to affluence, he says. Wealthy people are those who inherited their money. Affluent ones are those who earned it - and, more importantly, saved it.

Merriman is a Seattle-based money manager who’s a firm believer in his own ability to time the market using mutual funds.

But he’s an even bigger believer in everyone’s ability to do something about their financial lot in life … to be able to save money during their working years so they can enjoy prosperity, if not affluence, during their retirement.

Here are some strategies that he says will add up to sizable savings over time:

Invest in a timely fashion. Put money into your individual retirement account on the first of January each year instead of waiting until the final day 15 months later. By doing so, you can add nearly $14,000 to your IRA over 25 years, assuming an 8 percent compound rate of return.

Maximize your 401(k) at work. Many people invest only to the level that their contribution is matched by their employer. Adding $1,000 a year to your contribution will cost you only $720 if you are in the 28 percent tax bracket. Over 25 years, that’s an extra $18,000 out of your pocket.

But that will grow to $52,600 during the same time span, he adds, assuming a compound rate of return of 8 percent.

Take your lunch to work. One day a week save $5 by bringing a lunch from home. That adds up to $260 a year, or more than $10,000 if you work 40 years. That will buy a lot of meals with your senior discount when you’re old enough to be eligible.

Buy used cars instead of new. “The last car I bought was a 2-year-old Cadillac in 1992,” Merriman says. “It had 19,000 miles on it and was in near-perfect condition. I paid $17,000.” If you replace your car every six years and save $6,000 each time on depreciation by buying used instead of new, your retirement nest egg will grow significantly.

Be smart about your banking. Too many people have too much money in low-yielding checking and savings accounts. A money-market deposit account through a bank may pay 2 percentage points less than a money-market fund through a mutual fund. On $10,000 of savings, the difference in earnings is $200 a year. That adds up to $5,000 or $14,600 when you add in the accumulated interest at retirement.

Move your emergency money from a bank or money fund into a bond fund and gain another 2 percentage points. That’s $14,600 more in the bank after 25 years.

Give away what you don’t need. Once a year go through all your belongings and donate the things you don’t need to charity. Keep a detailed list and deduct their value at tax time. If you donate $500 in goods, that will save you $140 a year if you’re in the 28 percent tax bracket.

Merriman says that anyone who follows these guidelines can save as much as $100,000 during their working years - money that will pay them big dividends at retirement.