Fred in Springfield: well, ok, actually, you are more accurate to say these are recurring bills, but most of them seem to be medical in nature (physical therapy being the latest). I have a demanding manual labor job with a corporation that sees profitability by the mile walked and hour saved,if anyone would care to venture a guess. Filing claims
as workers’ compensation doesn’t really work, for I’ve been down the road of jumping through their hoops, and unless it becomes widespread enough for class-action or union-grieved, I’m the “odd man out”.
B,in Orlando;and Herman, in IL:
Trust me: it IS a boring lifestyle. But when I think how monotonous unemployment prospects could become, or how treacherous
our currency is, savings becomes the gold standard in itself.

To Pablo:

That’s great. You worked hard and achieved your dreams. THAT is the nature of the American spirit. You should be proud of yourself (and I am sure you are judging by the content of your post. I forgive you for coming across as a braggart given that you are only 25)

My husband did the very same thing for his first bachelor’s degree. He may not make 300k a year, but he chose a different path in life and that’s okay too. Not everyone wants to work for a hedge fund or on Wall Street. And society will always need doctors, nurses, IT specialists, teachers, military service people, government leaders, those in food service (I hope you tip well for excellent service) And many prefer to pursue other endeavors: Artists, musicians, dancers,

However, no matter how much people try, the laws of supply and demand cannot be repealed.

The demand for Wall Street jobs and seats at the top 5 B schools will most likely always exceed supply.

But you are right on about working hard. Too many people in this country want it all without working for it.

I think everyone should just work on Wall Street. I’m a graduate of a top 5 undergraduate business program and now work in at NYC at a hedge fund. I make $300k+ a year, with ~33% annual increases. Oh, and I’m 25.

Most people respond to this by saying, “Not everyone can afford a top 5 business school.” That’s great, but neither could I. I WORKED hard in high school to earn a full scholarship and the rest is easy from there.

So many people don’t realize that the key to doing well in the real world is doing well in high school. If you want a high paying job, you’re not going to get it coming from some community college in Florida. I’m still amazed by the severe repercussions that one’s actions in HS have on the rest of their life and even more dumbfounded by people who don’t teach their kids this. Work hard growing up, go to a good college, get that dream job. It’s as easy as that.

Now, I don’t worry about spending $100 at a bar a couple nights a week or splurging on a $5k vacation. It’s really the best way to live.

In response to Herman from Oakbrook, Ill…

It is one thing to be responsible and save money. It is another to be a miserable miser who never spends a dime. Your “top 12″ is nothing but “don’t do’s”. I am all for being responsible and saving; but not going on vacation, not eating out, not going to the movies, not going out for drinks, etc…all seams like a pretty dull life to me!

Gold coins are the perfect way to save, wont get taxed when they are bought or sold. cant be printed like monopoly money. Plus they are totally private . I was going to open up a CD at the bank and they asked me 20 Questions….I was lending them the money! After hearing about 1.75% taxable interest, I decided to forget that Idea. My investment is up 30% since last year.

My employer allows me to split my paycheck up into as many as 10 different deposits. I started by having the first $10 of each paycheck go to a savings account. Slowly increase the amount over time. It’s a way to get started.

Always, Always, and I mean Always–pay yourself first, and live off the rest. It has always worked to accumulate wealth, and it always will.

I really liked my friend’s approach to building his emergency fund - he viewed it as “self insurance” and billed himself for it each month.

I try to keep savings for big ticket items separate from the emergency fund, in sub-accounts, to limit temptation to take $ that’s earmarked for one thing and spend it on the current expense to “upgrade.” For that reason, my grad school, car, house and emergency funds are separate. All of these are automatically deducted to high-yield online savings accounts, but I have reminders set up for my “bills”

I’m only 25 and this has helped me save up a 2.5% down payment (still building), 3 months emergency fund, and almost $2k toward a newer car. Seeing it like this helps me make the trade-offs between attending a pricier MBA program and buying a house earlier or later, and whether or not I prefer a new car or to relocate somewhere with mass transit.

The biggest benefit I find is the tremendous freedom to periodically spend impulsively on something I really want, knowing that cash in my checking IS meant to be spent on day to day needs and enjoyment. I have the freedom to take a spur of the moment weekend trip as sunny weather, friends, and free time happen to align at the same time.

measurements of Americans’ savings rates are bunk. If I am maxing my 401K, Roth IRAs and HSA to the tune of near 40% of my earnings, what does it matter that I save nothing (by their measure)?

You know that the “low savings rate” you cited doesn’t include retirement or college savings plans, right?

I like both automatic deductions and paying “bills” to savings and retirement accounts. Aside from my automatic 401(k) contributions, I have my paychecks direct-deposited into 2 savings accounts - one regular and one high yield (the high yield for major expenses - downpayment for house, car, etc). Once a month, I figure out how much money I’ll need for that month and transfer it from my regular savings account to my checking account. From my checking account, I use automatic bill pay to map out all my fixed bills for the month, including “bills” to my Roth IRA and a taxable investment account. I try to keep a small cushion in my savings account, but if there gets to be too much extra I put it in the high yield one (it’s not as liquid since it takes a few days to complete a transfer out of it). The trick is that I don’t access the savings accounts from an ATM, so I’m not tempted to overspend.

I keep a running total budget in spreadsheet form, set up for a five year timeframe. In addition to an automatic deposit into my work sponsored 401k, I automatically transfer a set amount each month into another short-term emergency fund account. Like the other reader, I treat it as a bill, so it is automatically accounted for each month. I have found that doing it this way ensures the money is correctly allocated and accounted for. I know my financial situation for 5 years out, so if any major changes occur - I know where I stand.

I would like to respond to the low savings rate in the U.S. NO WONDER, with interest rates so stinking low, what the heck is the use. However, I do like the idea very much, it is a pretty cool way to save what you can, thanks…

Yes I saved all my life - to regret when I see how the government always rewards the spenders. Now I am teaching my kids not to ever save - I hope they will learn a generational lesson.
Inflation 4% - maybe on Chinese products …

When I put debits in my checkbook, I always round up and when putting in my deposits, I round down. By using this method, I have saved over $1000 in my account over the past 1.5 years. Slowly but surely I’m getting on track.
Of course I use my companies 401K and contribute 7%.

There are people who can afford to save but choose not to.
It is a matter of sticking to a budget and saying no to a lot of things you don’t need. We have TVs that are 12 years old. I drove my car for 16 years and we have our van for 11 years now. We only buy what we need. My husband and I are both in our early 40’s. We save 16% of our gross income towards retirement. We also save 40% of our take home pay in credit union accounts and DRIP.

Most people I know have a car payment. Eventually those cars can (or should) be paid off. When I paid my car off, my first choice was not to by another one as many people suggested, instead, I continued making my car payment to myself by depositing it in a separate savings account. I did this on the first of every month like clock work for seven years. I lived comfortably without that cash when I had a car payment and realized that it would ‘evaporate’ if I did not do something with it. When time cam to purchase my next car I used cash and had plenty to spare.

I have my entire paycheck direct deposited to my checking account at my local credit union. I have struck a nice balance between paying off my bills (land, student loans, utilities, all due around the first of the month) with one paycheck, and putting about the equivalent of all those bills into my savings at another credit union from the next paycheck. I also have share accounts set up at that credit union to save up for things like christmas presents, vacation (we roadtrip regionally), and new skis (you gotta live, right?).

I have a Roth IRA - but I’m not contributing to that until I have a 6-12 month reserve/short-term nest egg to live off of in the event that I lose my job (the job market where I live is beyond horrendous). Once I have that built up, that savings money will go to my IRA. I won’t be able to contribute to my 401(k) at work until my 1 yr. anniversary, but when that rolls around in September, I’ll be doing that too (they contribute 5% of your earnings after 2 years).

In addition, my bf and I do not have tv - I have a netflix subscription, we have high-speed internet (which he needs for work anyways), and a large monitor to hook our laptops up to. Between the two of those and our local library, we always have something to watch (like new Lost episodes!) and don’t have to shell out tons of money to watch shows from premium channels. We’ve been sans tv for almost a year now, and I don’t think we’ll be going back any time soon.

I suggest the everyone follow Bank of America’s idea for savings.

Each time you make a purchase round up to the next dollar and deduct the difference for your savings (keeping track of the round ups as you go). When you have reached the end check-ledger add up all the cents and deposit it into savings…

It makes savings painless. After all you’re making a purchase and saving each time.

That really is a disgrace. We have save 39% of our net income for the last 15 years. We are ready to retire with a state retirement system (vested), cash in the bank and mutual funds.

I use a similar method, but my Excel spreadsheet-budget tracks my living expenses as a running average, then [takehome]-[bills]-[living expenses]-100=[savings]. On payday, I make a deposit (when I was in debt, this went into the highest interest rate). Anything unexpected goes on my Mastercard, and simulatenous goes on the budget for the following mid-month’s pay period… as a bill. I went from owing 55k credit card in 2000 to 140k between savings and 401k now.

In response to Gage Santa Fe’s comment regarding prepaying a mortgage or saving the amount, the answer is “It depends.” If your outstanding loan principal is reduced by the amount of each prepayment, then it makes sense to prepay. However, if the principal is not reduced and you have the discipline to do so, invest the money each month in a money market (notwithstanding the low interest rates) or a municipal bond fund. Following this route will allow you to build a fund which you may use in the future to prepay your mortgage. You do not receive an economic benefit if you prepay the mortgage without a corresponding reduction in loan principal.

Instead of thinking of your savings as a bill that you write every pay, make it an automatic deposit. That way you don’t even think about it, the money goes in without writing a check.

These have all worked for me: set up direct deposit from your paycheck to an account at a bank other than your checking account. It ends up being a trick, like your 401k, where if it’s gone before you see it, it’s at least a little safer. Start low, but increase it whenever you can, even if just by a few dollars. Second, save your change and stick it in a jar and then when the jar is full, take it and deposit it - there will be more there than you realize. Third, right before you receive your next paycheck, round off your checking account balance and transfer it to savings (e.g., if it’s 457.50, move the 57.50, or 157.50, along those lines) - it will add up more quickly than you think. The whole point to saving well is set systems up that you can leave alone for a long time and you’ll be pleased with the results. It’s the same basic principle as a 401k - get it rolling with a reasonable strategy and it should turn out well.

Easiest way I’ve found to boost my savings is to do a split Direct Deposit. $75/paycheck into a seperate checking that’s linked to my ING savings account that does a Pre Authorized Transfer. So it’s a no brainer $150/mo I’m saving. Works like a charm. Great thing about it is any additional savings I want to do I can just manually transfer the funds as well. 3.00% on fully liquid cash… I’ll take it.

NOT EVEN CLOSE MAAN!! Learn from us folks from India who came here and are in top 1% wealthy inside 10 years believe it or not on around $100k earnings a year. You fellas need your butt kicked. Stop the following :
1. NO going to bars(ridiculous to pay 5 bucks for a lite!)
2. NO Starbucks or Latte. You need ‘Laath’ means kick in hindi ha ha
3. NO candy,flowers any of those BS
4. Limit soda consumptions and bag of chips secverely
5.No going to movies so no $10 bag of popcorn
6 Limit eating out to nomore than once a week. Brown bag lunches.
7. Eat less meat(healthy anyway) and more veggies
8.Limit entertainment like theatres or shows. Rent movies.
9. Meditate instead of goofing off and save on Gas bills. Tutor kids
10.Limit vacation spending big time. Lookout for deals
11. Quit spending on clothes andaccesories on whim. Buy essentials
12. Use the same furniture for 10 years atleast. If that’s oldfashioned say up yours.
Finally this is a decadent society goin’ down with time . That’s what prosperity does unfortunately.

Wow, many commentors feel it is a great idea to screw your children on college funds…I went through that reality. My parents decided it was in their best interests to keep all of their money for their own retirement and left me in a foreign country as a resident of no state and provided no direction or help. I had to work through High school and immediately following graduation so I could afford to move myself back to the US. From there I found the costs of school & rent & food to be too great. I spent the next 4 years in the Army (as a means to funding my college). This now put me at the age of 24 before I could even BEGIN college and I still had to work THROUGH college and take on student loans (even public universities are expensive when you are not a resident).

Did I value my college experience more? Hmmm…I struggled to find time to study for my Engineering classes in between 40 hours of work and commuting to and from work/school/home. I had to sacrifice a few classes and wait until the following year due to scheduling conflicts with work (40hrs of work leaves little time for classes…especially when a lab is scheduled in the late afternoon with the associated class mid-morning).

End results: 29 before I am on the market for my first job with a Bachelor’s degree. 5 yrs to get through college because I had to compromise on my classes to satsify my employer at a retail job [don't count on internships at remote locations when you MUST work just to pay the rent]. Student loans, 7 years total delay before I can begin saving for retirement and my career, etc…I loved how my parents tried to give me some money AFTER I finished school. Like I really need the money NOW when I will be just under 6 figures/yr after my next promotion. If they ever need help during retirement I know exactly what to do: wait until they are dead and offer a few thousand to help out.

My favorite saving method is to:

1.) Keep the 6-12 month cushion amount in a safe place.

2.) Don’t spend any money on stupid things that you don’t really need.

3.) Put whatever money is left in the best investment option available.

It’s not rocket science. A little self control can go a long way.

j gage, its good to have a cash buffer available for you that you leave and basically never touch. The reason is a loan can’t help you if you really need the money for personal or family emergencies or major other issues.

One you have that, the question is, which is more? The interest you earn on savings (after taxes) or what the loan is costing you? Nearly always the loan costs more, and in that case you should pay down. But there may be some rare cases where that’s not true.

TO j gage:
You have a $1000 bonus and a $1000 loan. Pay off the loan. You are paying more interest on the loan than you are earning in a savings account. When the loan is paid off take that montly payment and invest that in a Roth IRA or other retirement vehicle by automatic withdrawal. That money comes right off the top and you will never miss it.

need to differentiate between those whop have will power and those who don’t. Relabelling, reinventing, reengineering and redesigning are great tools but its lack the basics i.e. will power.

I teacher finance/investments at the high school level. This strategy of considering an investment/savings as a bill is something my students have been learning for years. This is most helpful for those who are not disciplined at saving yet or are just starting out. It is great to hear that others use it. I just wish more would.

All the postings make great sense if used properly. I do the same. I had a friend however whose husband would spend whatever balance was in the checking account. So one week she would pay the bill to “BellSouth” for the actual phone bill and a couple weeks later she would put a payment to “southern Bell” for the same phone bill. It basically deducted the bill twice from the account. She could go back and add up all the Southern Bells and see what her savings was and it provided emergency funds for her when needed. No not an ideal system but it worked for her.

I put 12% into my 401k each paycheck and make due with the rest. Further, I increase my contribution each year by at least 50% of my yearly pay raise.

My wife and I set up several savings accounts at ING (no fees, good rates) and a set amount goes into each account every pay period. We use these accounts as savings and “escrow” accounts, we save all year long for car repairs & registrations, car insurance, home heating oil, our property tax bills, vacations, etc.

My other suggestion is to split pay raises into 3 parts, increase regular savings, retirement savings and to fatten the budget (more breathing room each month).

I am not quite sure that the “hide the money in a separate account - if you don’t see it, then you won’t spend it” strategy works for everyone. If people really do not spend money that they don’t see, then why are there so many people in credit card debt?

I think that the best “savings strategy” for most people in the United States is a healthy dose of perspective once in a while. Do some reading about how the majority of people in the world live. When you get the urge to whine about how life is not worth living without all the latest electronic gadgets, think about the women in Malawi whose children are dead of AIDS, and who are raising their grandchildren on rotten bug-infested grain, because they have no other food to give them. When you feel personally offended by rising gas prices, think about the sweatshop workers in Bangladesh who walk for two hours to get to work, and feel it’s the best opportunity they’ve ever had. Realize that you have all of what you need and most of what you want, make do with a little less, and go make a donation to Oxfam already.

I have an approach similar to Michael’s but slightly simpler.

My paycheck gets deposited to an online savings account (ING) on a bimonthly basis. When I started, the assumption was to save atleast 10% of my annual salary, 10% for retirement, and the rest for normal expenses, debt, etc.

This strategy has worked very well for me so far and since I started, I am saving about 20% of my pre-tax income and an additional 10% (pre-tax) for retirement.

The benefit here is that I don’t even see the money in my checking account so I am not tempted to spend it and it earns a fairly good interest rate. Additionally, when I get a raise, my expenses don’t go up automatically and the extra money is automatically saved.

I have authorized my broker to automatically deduct a certain amount from checking account. If there are insufficient funds in the checking account, both my bank and broker charge me a penalty fee for the failed/overdrawn debit transaction. The threat of that penalty is enough to make sure there is always enough money in the checking account to cover the monthly deduction. Once my broker gets the funds, they are automatically invested in large cap value fund.

I make a standard transfer of 10% of gross salary each month. It is part of my budget. Not touching it makes my nestegg grow much faster than I ever imagined. That is incentive enough to keep at it.

The best way is to set up some type of automatic program (like an AIP, “Automatic Investment Plan”). An AIP will also typically remove the account minimums from your money market account (or whatever else) as long as it remains active. This can be as little as $50 per month. Consider it a personal “bill” or not, but the automatic part removes emotion (and your forgetfulness) from the equation. You can also roll it into your budget just like your other bills. The rest is up to your lifestyle. Do you really need that Starbucks every morning? Do you have to go to the tanning bed every week? Do you need all those stupid extras on your cell phone plan? That stuff adds up enough to make you live beyond your means and think you can’t do it. You have more power to make things happen than most people believe or think. There also has to be a level of contentment in your life. If you always want more, then you’ll never make it (or save any money). It’s not the economy, it’s not the government, it’s not the lottery… Only you can make it happen. That applies to any income level.

I am lucky that my work offers direct deposit up to 7 accounts. On top of that I am on a bi-weekly pay schedule so all my budgeting is done on a monthly basis allowing me 2 extra pay checks a year to either pay off debt or stock away in savings. The way I have it set up is that I have a small amount of money each paycheck going into a “spending account” which we use for “wants” and another into a high yield money market account through Vanguard. Both of these are done automatically so I do not have to worry about it.

I have a savings account in another bank that is separate from my checking and savings. I have automatic deposits sent to it each month. There is no debit card on the account so I have to drive there to withdrawl any money.
It makes you think twice before withdrawls. last year when my car starter died, the $500.00 bill was paid for with cash. I am now saving to pay cash for my next car.

My problem is that I always dispute as to either pay down a loan or deposit the money in savings. For instance, I have a 1000. loan and am to recieve a bonus of 1000. Should I pay off the loan or deposit the bonus to savings, or perhaps half and half. Any help?

It amazes me that the majority of the people in this country have no savings. Trying to keep up with the Jones’ is a financial death trap. Each month my husband and I have an automatic withdrawal from our checking account that goes right into our Roth IRA’s. We have the max taken out. We get paid once a month so anything that is left over at the end of the month goes straight into our savings account. When that gathers enough cash we open a CD account. Sure, I could be driving a new car every couple years or take trips to the Carribbean, but we try to live by wants and needs. We are not rich. My husband is a teacher and I am a school secretary. Retirement is approaching in couple years and our house will be paid for and we will have no debt. I wish I could say the same for some of our friends.

Great article, but I think you are off base with your attack on cable. Families need some expenditure on entertainment - thats reality. When you look at all the options available and how much each will actually be used, I find that cable is good value for my families money.

I use a similar system. On the first day of the month, I have my bank automatically transfer a set amount from my checking account to my savings account. I can increase this amount as my financial situation gets better. Another rule: if we get a windfall, half goes to pay off debt & half goes to savings.

I have both an automatic investing plan and an automatic savings plan, so both accounts get deposits each month. I have enough in my emergency savings account right now, so at year-end I transfer the surplus from my savings account to a money market account. I am putting enough in the latter each year so that at the end of eight years there will be enough to replace my car without borrowing - assuming of course that my current car lives eight years and that the cost of a new car doesn’t increase dramatically more than I’m expecting. I also deposit all of my change every few months, as another commenter described.

Vito, if you keep having ‘emergencies’ then they’re not really emergencies. At least not all of them. Money in an emergency fund should be saved for things that are very rare and very serious. If you’re dipping into it een once a year, you’re doing something wrong.

What you’re talking about are regular things that you should be planning for. Saving money for and not paying for until you already have the money. Either that, or cutting something else out of your life to compensate. Leave the darn emergency fund alone until you have a *real* emergency, or else you’ll end up regretting it once you do.

I haven’t gone as far as to have a separate direct deposit from my paycheck, but I set up a monthly automatic payment to my savings acct from checking. My savings acct is not linked to my checking, so I never “see” the balance when I get ready to pay my bills. This method also lets me use a high-yield savings acct (e-trade, etc.) while maintianing my brick-and-mortar checking acct.

For expensive items like a car or the cottage we’ve been thinking about, I setup an phony account in my financial software and automatically transfer the amount from our checking account each month. The money never really leaves checking but I don’t see it in my software. We build up the downpayment in this way and also see if we can truly afford what we want. It’s far better to test your ability to make those payments (while building up that downpayment) than to jump in and realize you couldn’t afford it!!

One way to get around the problem of transferring money back out of savings to pay expenses is to have two savings accounts that you direct deposit to. One is at the same credit union as your checking account, and is used to help pay expenses (but make you feel guilty in the process), and the other goes to a separate institution so that it isn’t easy to transfer back to your checking account. You’ll end up forgetting about this second account, and over time it builds up.

Also, when I set up my direct deposit, I have a set amount go to checking, then the rest goes to the savings accounts. That way when I get a raise every year, the entire raise starts going to the savings accounts. If something happens like gas prices going through the roof, I can make adjustments, but then it is a conscious choice

One method I use is pocket change. I never spend my “change”. The coins that come back from everything. It goes home and in the evening it goes in a jug. Every few months I take it in and deposit in my savings account.

I am told that your change equates to 5 to 7% of your expenditures. Not a lot, but more than most and its isn’t terribly painful. I know it is a surprize how much that deposit is.

For me it supplements the direct deposit to savings that automatically comes out of my pay check, but it is a start for those who don’t have anything else.

Actually, I have an automatic savings program, but it seems that I always take a large chunk out of the fund to pay for expenses that crop up. At this rate, I won’t be able to let it grow to the minimum required balance. It’s a money market fund designed for emergencies, but
c’mon!