From the Editor
10 Ways to Trick Yourself Into Saving
Follow these tips to spend less and pocket the money you save.
By Janet Bodnar, Editor, Kiplinger's Personal Finance
February 22, 2010
If cheap is chic, then saving is suddenly sexy. America Saves Week [February 21-28], takes on new meaning when the U.S. savings rate, which had dipped into negative territory, headed up to 4.6% last year. The savings rate could climb as high as 6.5%, according to Allianz Group Economic Research.
You know you’re on to something when investing icons such as Burton Malkiel and Charles Ellis jump on the bandwagon. Malkiel and Ellis are authors of a nifty little book called The Elements of Investing. The book is just 154 pages long, including glossary, and its investing advice can be summed up in four words: “Keep it simple, sweetheart,” a strategy I wholeheartedly endorse.
But, say Malkiel and Ellis, “it all starts with saving.” Who would have imagined that this legendary Wall Street duo would be advising readers to buy next year’s Christmas cards on December 26 or rent a movie instead of going out? People at all income levels tell me that they have trouble putting money aside because they’re living paycheck to paycheck. But I’m convinced that saving is a classic case of mind over money. Here are ten surefire ways to trick yourself into spending less and saving more:
Know your plastic personality. Disciplined credit-card holders can earn rewards points by using their cards for all their purchases and paying the bills in full each month. Consumers with less self-control may want to use debit cards to make sure that they don’t spend more than they have. In either case, your monthly statement provides a handy record of areas where you’re leaking cash.
Don’t trust yourself to pay yourself first. Instead, have someone else do it for you. Sign up for your employer’s retirement plan. Set up an automatic deposit with your bank to seed your emergency fund. Even Uncle Sam will jump-start your retirement savings by automatically depositing your tax refund in an IRA. And you’ll never miss money you don’t see.
Do what my son Peter does: Deposit your paycheck and other money to your savings account instead of checking. You’re much less likely to spend the money if you have to transfer it from savings. “That really hurts,” says Peter.
Instead of hitting the cash-back button for $35 every time you go to the drugstore or supermarket, limit yourself to one ATM withdrawal per week and make your money last.
When you make a credit-card purchase, record it immediately in your checking-account register. You won’t be surprised when the credit-card bill arrives, and you will have enough money to pay it in full.
When you subtract a check from your account, round up the amount to the next dollar. That way, you’ll always have a slush fund. Your bank may even do this for you. Sounds like small potatoes, but even if it’s only $100 every couple of months, that’s still money in the bank.
Toss your spare change into a fun savings bank or glass jar -- anything that will catch your eye and your quarters. I know one person who accumulates $900 to $1,000 a year this way and uses the money to buy holiday gifts.
Bag the savings from brown-bag lunches. Each time you bring your lunch to work or pass up the temptation to buy a latte, take the money you would have spent and put it in your cash jar. It’s an immediate reward for your self-discipline.
Pay yourself after you’ve paid off a debt. Once you finish paying off a loan or credit-card balance, keep writing the check but send it directly to a savings or investment account.
Can’t decide between two items in a store? Give yourself a cooling-off period. Chances are you won’t go back.
Remember, if money is power, then saving money is empowering. It gives you financial security and the freedom to make choices. Every once in a while I tap my own slush fund to send my three grown children checks to treat themselves to dinner. They appreciate the gesture and I have fun making it.
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Reader Comments (8)
Posted by: John Navarre at 02/23/2010 02:21:21 PM
I've got a great way to trick yourself in to saving--picture you working the counter at McDonalds at 6 am when you are in your 70s. How does that look? Is that something you'd like to have happen? Then stop spending every nickel you have America, because that's where you are headed.
Posted by: Matt Russell, CFP(r) at 02/24/2010 03:26:12 PM
Once you've paid off a debt, rather than paying yourself that monthly payment how about adding it to the payment of the next debt you're trying to pay off? That gets the next debt paid off quicker. Simply apply that methodology until ALL of your debt is paid off, and THEN you can start paying yourself.
Posted by: Angela Stevens at 02/25/2010 05:01:41 PM
@Matt: Yes, I immediately thought the same thing when I read that part in the article. I have begun doing this and found a (Free) spreadsheet to calculate how long it will take. It's called the "Snowball Effect". I now say I have a 15-yr plan. Because in 15 years tops (if I never pay more than what I have calculated to do (ie no lump sum payments)) I will be completely debt free. That includes my home, my current vehicle, student loans, credit cards, etc. But in order for the plan to be successful, it is important to NOT continue accumulating more debt. Otherwise you'll never get anywhere! This has always been my problem -- I finally pay off a card only to use it again! Well no more! I also went to a cash envelope system for my flexible spending (groceries, gas, dining out, clothing, etc.) and it is doing wonders! Budgeting is often perceived as a "bad word" but it is critical for financial success and growth!
Posted by: Malki at 02/25/2010 08:40:41 PM
The reason it is prudent to send the check to a savings account over paying off another debt faster is because of the compound interest, and the amounts add up to much higher numbers the earlier you start.
Posted by: d.p. at 02/25/2010 09:10:18 PM
rounding up checks = $100 "every couple of months"? think about it.... if a "couple" = 3 (I'm being generous), then you would have to get $33 per month by rounding up. If, on average, you round up $0.50 on each check, that would require 66 checks per month More than 2 checks a day? Here's an idea, get with the 1990's and use a debit/credit card or online banking. And save the money you spend on checks. You'll also create the social benefit for everyone standing in line behind you while you were writing those 66 checks.
Posted by: Nat at 02/28/2010 11:58:02 PM
Take out your monthly grocery money and set it aside. You ars less likely to overextend yourself. Do the same for entertainment and eating out. If you get to week three and only have $5 left to spend eating out cook something instead. You will find it is much harder to spend cash than swipe the debit or credit cards.
Posted by: SCOTT at 05/09/2010 08:57:00 AM
Here's a REALLY good trick to save-keep yourself in good physical shape! I had the foresight(luck?) to chose a steady, well-paying job in healthcare (and no, I'm not a doctor) for 30 years now, and daily I see what the ravages of poor health do to people in terms of lost wages, drugs, therapy, lab tests, doctor visits and yes, unaffordable insurance premiums. Much of this is avoidable- if only these folks would take care of themselves with some regular physical activity, no smoking, less alcohol and better eating habits. I see folks in their 20s and 30s with the bodies of someone 50-60 years older who just can't figure this out! Several years ago when I turned 50 I was lumped into that age group for group life insurance through my employer. The monthly premium was TRIPLED! I went out on my own in the market and found the same benefit in a 10 year level term for an annual savings of $1000/yr(!) because I am in good shape as defined by the insurer. Health care (actually, health INSURANCE) reform will not help you much if you don't take responsibility to take good care of yourself. Stay (or get) in shape and stick around to reap the benefits of the money you're trying to save!
Posted by: Melani at 09/27/2010 10:05:30 PM
I've been using the "rounding" trick for 2 years now only I round down my deposits to the closest "$5", IE : $778.32 gets rounded to $775 and my withdraws get rounded up to the next dollar, even when it's only 2 cents, IE : $7.02 gets rounded to $2. I wind up with almost $15 a month extra, if not more. So that $100 in a few months is very plausable. Last year, I had an extra $600 from rounding, what a boost to the Christmas Fund. :)