First trick yourself into building a cash cushion, and then trick yourself into keeping it. The process is profitable and might even be fun.
By Donna Freedman, MSN Money
In a perfect world, we wouldn’t need tricks to save money.
Life isn’t perfect, though. The national savings rate has edged up to around 5% — an improvement over recent years — but it means that Americans, on average, tucked away only about a nickel of every dollar.
Plenty of people “seem to think they can’t afford to save,” says Rebecca Schreiber, a financial planner in the Washington, D.C., area. She acknowledges that the unemployed or the deeply indebted can’t put aside much.
But it’s essential to have a plan to build savings, if only a dollar at a time. Suppose you were able to squirrel away as little as $2 to $5 a week. In a year, that would be $104 to $260 that might otherwise have gone to sodas, magazines or the dollar menu. Doesn’t sound like much? When you need a couple of new tires, you’ll wish you’d skipped those cheeseburgers.
There is no magic, and there is no free ride. But there are ways to make the process less painful — even a little pleasurable.
Spend a little, save a little
Give yourself an allowance for fun. Put that amount in an envelope each payday or fold it in your wallet. Once it’s gone, that’s it — no fair dipping into savings. (But you get extra credit for putting leftover discretionary spending funds into savings next payday.)
Message board reader “ATSiaRU” says that knowing she has a certain amount of money to spend any way she wants “makes it easier to put money earmarked for future purchases or long-term goals into the bank.”
I’d never tried this until recently, when I decided to allot myself $10 a week for fripperies. Knowing that I could spend the sawbuck has thus far kept me from feeling that I have to spend it. It’s like a little green security blanket.
The 5 best ways to save on food
Of course, you could also spend your allowance the first day of the month. Or the last day. The point is that your savings should stay right where they are.
Can’t touch this
Financial educator Katerina Taylor admits being occasionally tempted by thoughts like “I really want that purse.” However, most of her money is in a pair of online banks that require at least 48 hours for transfers. This is enough of a cooling-off period to make her realize she doesn’t really want that purse.
Another way to keep her mitts off the moola: Taylor sets most of it up in laddered certificates of deposit, which carry penalties for early withdrawal. However, the CDs mature regularly enough that money would be available for a nonfashion emergency.
A reader posting as “NancyinFL” set up automatic withdrawals from her checking account into a “one-way” fund — no debit card. She dubbed the account “Next Life” because it’s the seed money for a new career.
In the past few years I have opened several additional checking accounts, earning bonuses of $25 to $100. My best deal thus far: getting $200 recently to open a business checking account. At the same time, I got a business credit card and was given 30,000 in rewards points after the first use; these points converted into $300 cash.
It all goes into an account I named “Home.” The idea of a home of my own inspires me to look for more ways to boost the balance: manufacturer rebate checks, payment for occasional baby-sitting gigs or handyma’am jobs, cash-back shopping rebates, wrapped change and payments from online surveys. Generally I add a couple of dollars from my wallet, too.
Thus far I’ve put aside more than $2,000. It’s not a fortune, but plenty of it is money that might have otherwise dribbled away.
I envision an entire home, but message board reader “Tiredboomer” focused on just a kitchen. She had a cabinet store design the culinary center of her dreams, and she kept a picture of the plan by her desk “as inspiration to try to put as much money as possible in my kitchen account.”
It took a couple of years, but now she’s cooking in style — and she paid cash.
It wouldn’t hurt to rubber-band a photo or advertisement of your goal to your credit card or debit card either. When you want to stop for takeout instead of going home to heat up leftovers, you’ll see the picture of that new baby who will one day need to go to college.
Rounding up extra cash
An old savings tactic is to round up the amounts on checks — for example, recording an $11.09 check or debit card purchase as a $12 transaction. At the end of the month, you add up the discrepancies and transfer that amount into savings.
Some financial institutions will do the transferring for you and maybe provide some matching funds. Bank of America’s Keep the Change program and Capital One’s SmartCents program are two examples. Of course, you’ll want to read the fine print for things such as minimum balance requirements.
Another time-honored technique is to bank the money you save by using manufacturer coupons each week. The Unlock Your Wealth Foundation, in Scottsdale, Ariz., suggests doing the same with money saved through supermarket loyalty-card savings.
Some people swear by the “dollar bill challenge,” setting aside all singles that come into their hands. If that’s too rich for your blood, save only your change. You’d be surprised how quickly it adds up. In one year, I amassed $34.54 just by picking up money other folks had dropped. (I donated it to a food bank, though.)
It’s a bill, so pay it
Wouldn’t it be great if there were savings collectors every bit as persistent as the ones who go after debts?
The fact is, savings is indeed a bill to be paid.
The easiest way to pay bills is the easiest way to save, too: automatically. Direct deposit from your paycheck whisks money away before you even see it. You quickly learn to live on what’s left.
Start with a few bucks. When you don’t miss it anymore, increase the amount a little. Work slowly, giving yourself time to adjust.
Honest, it works. “Once you see what you’ve accomplished, you’re more disciplined. You don’t want to see that money diminish,” says Taylor, whose Smart Kidz Money Matters program targets secondary-school students.
If you’re a hands-on type, make sure the first item on your list of bills to pay each payday is savings.
Financial planner Paul Tran of Focal Point Financial goes a step further, sending his clients monthly invoices for their long-term goals, such as “Your Dream Home.”
“They’re in that mentality of rounding up all invoices to pay them. There’s momentum in that,” says Tran, of Irvine, Calif.
A few more stealth saving tactics
Yes, it’s hard to save. Do it anyway. Don’t give in to what Richard Barrington of MoneyRates.com calls the “misery-loves-company trap.”
“The fact that your neighbor or your fishing buddy or your brother is in the same boat isn’t going to make your financial hardship any easier,” Barrington says. “At the end of the day, you’re responsible for your savings.”
Some additional strategies:
- Set up direct deposit for a flexible spending account and/or work-related reimbursements. If you need those funds to pay bills, try to leave at least $5 of each reimbursement in the bank.
- Get symbolic. Want to retire at 65? Start depositing $65 each month or week. Indiana resident Marc Allan makes weekly deposits equal to his two daughters’ ages. “It’s an easy way to save, and since it only goes up $1 a year per child, it’s not difficult to maintain,” Allan says.
Ask for help. Why not start a savings support group, either online or with friends?