The Easiest Way to Save Money

[James81]

This isn't a highly enlightening tip, but if there are peeps here who don't do this and this idea helps, then this thread is worth it.

Basically, I've found that it's far easier to save money when I don't have to physically drive to the bank to deposit it. A while back I set up my direct deposit to funnel my cash into two banks instead of one...one was to my checking account, where bills were paid, living expenses, etc. The other to my savings account (which was linked to another payment I was trying to pay off that automatically pulled from there.)

The payment was for a year, and it was 250 per month. So, I set it up to pull 150 per pay to go to this account. When the payment was up, I was dumping 300 into savings automatically without ever seeing the money touch my fingers. Was able to bank quite a bit of money that way.

I've learned that out of sight = out of mind.

Like I said, not an overly enlightening tip, but it was pretty effective.

[Will]

This is pretty much what David Bach talks about in The Automatic Millionaire.

[KMMK]

I'm the opposite. I love moving a big cheque at the end of the month from 1 bank to another. I do almost everything electronically but love writing that cheque - almost time for another one now.

[Dee]

I've been using this method and I must admit I'm not as super-smiley happy with it as I'd hoped. I chose a big amount to transfer directly into savings, so that it would be a bit of a challenge (by my standards) to not overspend on what was left in chequing. On the positive side, this is mostly working -- much of the time, my savings account grows as planned, with no withdrawals. On the down side, it doesn't always work -- there have been a few occasions where I've had to transfer back some savings into chequing because I spent more than I could with the level of savings I had planned. The downsides are that I often feel as though I'm broke based on the amount I have in chequing and I feel like a failure when I don't meet my savings goal and transfer money back into chequing. Basically, what this comes down to is that I *do* miss some of the money that automatically goes into the savings account.  Still, I am quite convinced that I am saving more this way than if I relied on transferring whatever's left at the end of every pay.

[James81]

Dee, I've found that most people's struggles with finances come from failing to account for smaller recurring payments that don't seem like bills. For example, rent and electricity seem like billsbecause they are common and pretty much apply to everybody.

However, a daily cup of coffee is more individual-based choice, and not necessarily essential, so we often doesn't feel like a bill. However, if you routinely buy a cup of coffee every day, then you can (and should) account for this in your budget.

Most people do not consider those smaller, more behavior-based bills because they are so small. But little things, done on a daily basis, add up to significant money. A cup of coffee a day can be anywhere from 30 to even 150 dollars a month (if you do the starbucks thing). That's a huge chunk of money that many people would never account for in their budget because it isn't a typical "bill."

Not saying that is the issue with running out of money and having to dip into savings, but it could be a place to start. I think it helps immensely to know your behavior patterns because it allows you to more thoroughly plan.

[velocistar237]

I've been thinking about increasing my savings rate through this. I find that when there's money in the bank account, I'm a little bit more likely to just go ahead and buy something. We had a hard drive start making an awful noise, and we replaced the computer. Granted, it was a 3-year-old netbook that was falling apart in other ways, but if the money wasn't in the account, we would have gone the cheaper route--a new drive. If I really want to buy something, I can save for a few months out of the leftovers.

My 401k deposits are automatic, and I don't even consider touching that money. I'll see what sort of savings rate I can set that will stretch us just a tiny bit. Then I'll set up a recurring Vanguard deposit according to that rate.

[Dee]

Thanks, James. Maybe you are on to something. I've resisted budgeting per se, choosing to wing it more by setting aside an amount in savings and having what seems like it should be *enough* left over to take care not only of the bills but of the everyday living items as well. I've been operating under the theory that if I put it aside, I won't miss it, etc. And that I can make whatever necessary adjustments to my spending are necessary by foregoing certain expenditures when I don't have enough money left. Basically, I've set my spending goal at a certain amount and am trying to stay within it (i.e. pretending I make less than I actually do). When I miss the mark, the consequence is having less savings rather than having to turn to credit cards or other debt.

[James81]

Thanks, James. Maybe you are on to something. I've resisted budgeting per se, choosing to wing it more by setting aside an amount in savings and having what seems like it should be *enough* left over to take care not only of the bills but of the everyday living items as well. I've been operating under the theory that if I put it aside, I won't miss it, etc. And that I can make whatever necessary adjustments to my spending are necessary by foregoing certain expenditures when I don't have enough money left. Basically, I've set my spending goal at a certain amount and am trying to stay within it (i.e. pretending I make less than I actually do). When I miss the mark, the consequence is having less savings rather than having to turn to credit cards or other debt.

I think that approach *can* work if you have a pretty good gut-feeling bead on your spending habits and behavior. In that case, the amount you set aside will *feel* right and you'll be more likely to stick to it.

On the other hand, though, it can be counter-productive to use this approach because you pick an amount of savings that is not based realistically on what you spend, so you run out of money and wind up having to dip into savings.

I think a very detailed budget would help you avert this issue. It may even help to start writing down what you spend your money on and just keep track of it for a couple of months. That way you have stuff to look at and see what patterns you have in your spending.

[Dee]

I did do a six-month assessment of how I'd spent my money a little earlier in the journey, when I was still on the getting rid of consumer debt leg of the journey, so I do have a basis for my targets. But, yes, certainly continued tracking and budgeting would be a useful addition to the exercise. Thanks again James. I think I will heed the gentle nudge soon.

[ShanghaiStashing]

It's interesting. I found the 'automatic method' didn't really work for me. This is for a few reasons:

1. I find my bills fluxuate from month to month, but average out to what I want to them to. Spending depending on season can swing by as much as $300-400 for me.
2. I'm more motivated by seeing a big-ass pile of money build up in an account, so I tend to life watching 1-2 months savings build-up and then moving into investments.
3. I felt guilty when some months I went way over in terms of spending, even if none of these were discretionary purchases

I tend to be more of a 'think about every purchase' type of person because this is easier for me. For many who are first breaking out of the womb of consumerism the automatic savings will work well, just not for me personally.

[Zoot Allures]

The automatic method, or some variation on it, works well for me. I've discovered the pleasures of keeping my checking balance as close to zero as I can. I always look forward to payday so I can pencil out where my money needs to go over the next two weeks (recurring bills, mortgage, etc.) and how much is left over that I can send to savings. I have an online savings account (separate from my credit union) that's set up for recurring auto-deposits, and I tweak the amount when my biweekly back-of-the-envelope scribbles show that I have extra cash available to put into it.

I use a credit card for almost all purchases and pay it off every two weeks, so I don't have the anxiety that comes with using a debit card that's drawing from a low checking balance. On the rare occasion that I make a cash flow error and overdraw the checking account, my credit union just pulls the needed amount from my personal line of credit with no penalty.

[Osprey]

Dee, I had the same problem that you did, with the added complication that my partner always has a large balance in his cheque account and would want to bail me out when I was "running out" of cash. I never learnt to properly judge/predict my spending until I did a detailed retrospective budget. It killed me and I still can't bring myself to do a prospective budget (still estimating semi-random amounts at the start of the month...) but my awareness has improved immensely.

[DocCyane]

I'm the opposite. I love moving a big cheque at the end of the month from 1 bank to another. I do almost everything electronically but love writing that cheque - almost time for another one now.

I'm with you, Kestra. I like the control of sending that money myself. I don't want any kind of autopilot system, because that feels like a way to miss opportunities.

I've learned a lot and made better decisions over the years by working my finances like a hobby. Paying attention. Constantly reassessing.