First of all, a disclaimer: while I’m not directly involved with SmartyPig, I did speak with the development team in detail during the development process and offered a number of suggestions and ideas, and I was kept abreast with their development along the way. This group sought my input during their process of growing from concept to public release, but I am not directly involved with SmartyPig in any fashion. I do, however, think the product turned out quite well and I’ve been looking forward to telling you about it - I had to wait until after its recent public launch to do so.

Several months ago, I went out to lunch with a couple people who wanted to tell me about a project that they were working on that they thought I might be interested in. They knew of me via The Simple Dollar and, because they were based in Des Moines and I happen to live near Des Moines, they thought it was a great opportunity to get my opinions and thoughts.

Since the lunch was free and I had the afternoon off anyway, I thought, “Why not?” The worst that could happen is that I get a free lunch and listen to some boring conversation. I had heard a few pitches like this before from various people and groups and most of the time I saw very little that would get me excited.

That group was the SmartyPig team, and the set of ideas they’ve come up with is genius.

What’s SmartyPig?
Right now, I use ING Direct as my primary bank. They provide my checking services, my savings services, and all of my online bill pay services. They even allow me to set up sub-accounts so that I can save for specific goals. In my opinion, ING Direct is the best of the full-service online banks, and I’m a happy customer of theirs.

Still, when I look at online services like mint.com, I’m jealous: the idea of sharing saving goals with others is very intriguing. Personal finance and saving money has the potential to be as social as any other activity - we can involve our friends and family in the process and make it a point of conversation and a point of pride.

I can’t help but think back to when I was a teenager and saving for a car. My family was intimately involved in this process, and they encouraged me all the time to keep saving. My dad would occasionally put a few dollars into the account, and my mom would sometimes slip me $5 towards the car when I would take out the trash. Other family members, particularly my grandmother, were quite encouraging as well, and even a few of my friends were in on the story. When I finally got the car (and got it fixed up and road-worthy), it felt like not only a goal I had achieved personally, but a goal I had shared with my family, too - they were happy for me as well as they had seen the progress all the way along.

I’ve often thought that this type of thing would be a very cool feature for an online bank. Why not allow people to set up “public” savings accounts for such goals and then allow others to contribute money to that account and watch the progress? When we were buying a crib for my son, for example, both grandparents wanted to contribute and wanted to know how we were doing in saving for that crib (we were getting a gorgeous one that would be perfect not just for our children, but for their children and so on). One of them even suggested that we have a baby shower themed around the crib we had in mind, but there was no intuitive way to put the pieces together for it.

SmartyPig is basically the solution to this. SmartyPig is basically an online front end for West Bank, a bank chain here in Iowa. It basically allows you to set up savings accounts for specific goals and make these accounts “public” so that others can track the progress in the account. You go in, define a savings goal, set up an automatic savings plan that pulls from your checking account, and then watch your progress towards that goal. The account offers a pretty competitive interest rate, too. When you’ve reached a savings goal, SmartyPig issues you a MasterCard debit card that contains the full balance of your account, and you take it to wherever you want to go to spend it.

SmartyPig took the next logical step, too. They hooked in a number of retailers to kick it up a bit more. Let’s say, for example, you’re saving for a KitchenAid Pro stand mixer and you’re going to buy it off of Amazon when you reach your $300 target. If you specify that as your savings goal on SmartyPig, you’ll get the option of getting that $300 as an Amazon gift card - and they’ll kick on a few extra percent towards the purchase. So, for example, you might get an Amazon gift card at the end with a value of $315 or a MasterCard debit card with a value of $300 - your choice.

My Concerns
SmartyPig is a combination of two very good ideas - the social sharing of an online savings account, plus the option to roll it into a gift certificate for extra savings. I’m left with just a few minor concerns.

First, any time you sign up for another bank account, you’re giving your personal information to at least one more source. While the risk is slight, it does exist - there is no perfect security in the world and your best protection is to always minimize the number of places where your information exists. In a nutshell, I usually need a compelling reason to share my personal information - if it’s there, I’m okay with going forward, but I don’t hand out my information unless I can clearly state the reason and it’s a worthwhile one.

Second, the maximum benefit of SmartyPig comes from consumerism-oriented goals. While you can use it for things like a $5,000 emergency fund, SmartyPig doesn’t lend itself well to goals like that. By its very nature, SmartyPig is for saving for item-oriented goals. While this can be good - it’s a great way to save up for a new washer and dryer, for instance - it can also be bad if you use it to save for extra stuff you don’t really need.

Will I Use It?
For the exact purpose that it fills, SmartyPig is a wonderful online savings option, and I’m using it to save for at least one specific future purchase - a new dryer. Our old one is on the fritz, and this is a very subtle way to get the cash for a new one. My wife is considering adding a new washer to that goal as well. I have not yet shared any goals, mostly because I can’t think of a good idea for one to share.

I will admit to being tempted to set up a savings goal to save for a few frivolous things - and I think that’s one of the dangers of SmartyPig. It’s fun to play with, and my natural instincts are encouraging me to set up savings goals for things like a digital video camera setup.

Should You Use It?
SmartyPig excels at facilitating goal-oriented saving - if you’re saving up for a specific item, this is perhaps the best way I’ve ever seen to self-motivate to get it done and earn some solid returns in the process, both from the interest earned in the account and in the potential gift card you can get when you cash out. If that’s something you struggle with, SmartyPig is a very useful tool for taking that journey. The real question is whether you see a role in your life for such goal-oriented saving - not everyone does, and if it seems pointless and consumeristic to you (which has been the reaction of at least one person I’ve described SmartyPig to), then there’s no need to sign up for an account.

Personally, I think it’s a big help if you’re slowly socking away money for a specific large purchase, and it can be a compelling tool if you’re wanting to share a savings goal with others.

Over the last week, my cell phone has slowly been dying. The screen goes black randomly and it ceases to accept button input until I remove the battery and re-insert it. This phenomenon has happened with more and more frequency as of late, reaching the point where it’s killed phone calls in the middle of the call. It was time to get a new cell phone.

I looked at my options. My wife and I have been using the same cell phone provider for the last four years and have been very happy with them. We had heard rumors that their service in the area of our new home was bad, but the service has actually been even better since we moved - I haven’t seen anything less than four bars at home or in any place that I go to regularly. Thus, my wife and I wanted to stick with the same service provider.

I went to the cell phone store today with my tactics for buying a new cell phone in mind. I wanted to make a change to my service plan (upgrade my text messages and my minutes because I’ve gone over the top on both of these recently) plus get a new phone. I had decided that I wanted a RAZR because of the feature set that it had and the size of the phone itself, but I did not want to walk out of the store paying more than $100 for the phone, a car charger for the phone, and any other fees.

Here’s exactly what I did.

I walked into the store, briefly surveyed the people working there, and grabbed the one who was not involved with anyone at the moment. I told her that I was potentially interested in a new service plan (my old one had expired and I was just paying by the month) and specifically what I wanted with the plan. I also told her I wanted new equipment and walked away to look at it to let her think about it for a bit.

I knew better than to negotiate the service plan because it’s usually set by national carriers, but I knew that basically anything in the store was negotiable, especially fees. I also knew that I’d be able to get several things from this person, whose eyes were already calculating their sweet commission on the sale.

I went for a RAZR, just as I wanted. I asked for details on all available rebates and the person actually filled out the rebate form for me to get $30 back - literally, I’ll go home and drop the information in an envelope and send it.

There were also two different fees that the person attempted to ding me with. I directly asked for each fee to be waived and, although the lady helping me seemed a bit startled at the request, she said “Sure” and waived them without hesitation.

I also asked if there were any discounts on accessories for the phone and ended up with a 50% discount on the car charger.

The end result? I got my plan changed, a Motorola RAZR, and a car charger for less than $70 after I drop the rebate (already filled out) in the mail. Easy as pie.

Three real keys if you are getting a new cell phone: ask for all possible rebates, ask for fees to be waived, and ask for discounts or coupons on accessories. Remember, you’re the person in the store spending money - don’t feel bad about asking for such things.

Last night, I was at a party for several homes in our neighborhood and I had a long conversation with a couple who were completely intrigued by The Simple Dollar. They asked me a lot of questions about it, and also asked a few personal finance questions. The one that really piqued my interest was when the female in the couple mentioned that she had started a savings account for her infant son in his name, was putting $5 a week in it, and was going to continue doing that until his 21st birthday, upon which they would tell him about the account. They started the account the day he was born.

I was intrigued by this, so I went home and did the math on it and a few other account ideas. If you put $5 away each week from your child’s birth to his 21st birthday into an HSBC account that earns 5.05% APY, your child would have $9,441.68 on their 21st birthday. If you put $10 away each week, the child would have $18,883.35. I also considered continuing until the child was 25 in order to spur on a down payment; if you did that at $10 a week, the account would have $25,185.81 in it.

Is the savings account too little? Each year, roll the account into an index fund. If it returns 8% a year (a low estimate), you’ll be doing even better ($10 a week until age 25 would yield $38,952.16). It’s rather clear that given the large period of time, you really give compound interest a chance to work.

Why do this? If I suddenly had $38,952.16 drop on my lap at age 25, I would have immediately had enough for a down payment on a home. We would not have spent years in a very tiny apartment - we could have moved on to a wonderful home earlier than we did. On the other hand, if I had that kind of money dropped on me before my financial meltdown, I’m not entirely sure I would have been mature enough to handle it. Ideally, I would think that I would have used it to pay off my debts, but I’m honestly not entirely sure about that.

Another aspect of the question is what financial support do you feel appropriate giving to your children? Once I turned eighteen, my parents gave me very little financial support - they assisted with textbooks the first semester or two, but after that, it was entirely up to me. I know other families, though, with children in their late twenties who still rely on their parents for many necessities of life. Doing this is in some ways actively choosing to not cut the cord.

When your child is born, one of the first questions you’ll ask yourself is how do I take care of this child over the long haul? A straightforward investment like a savings account might be an appropriate choice for you.

In the aftermath of yesterday’s discussion about how to manage several funds in one account, several people mentioned actually opening multiple savings accounts at ING Direct under one general account, enabling people to sort their money (I happen to be a big fan of ING Direct, but you may also want to read the note at the bottom). This, of course, intrigued others, who asked how this could be done, so here’s a description.

Step 1: Log in to your ING account Enter your information and go view your overall account information.

Step 2: In the upper left, click on the “Open Account” option You can see it clearly in the picture above.

Step 3: Choose to open a new savings account on the next screen The “Open Now” link in the image above is where you should go.

From there, the process is really straightforward - you can call each account you create whatever nickname you like to identify it as a distinct fund: an emergency fund, a “house maintenance fund,” a “vehicle replacement” fund, and so on. From there, you really should set up automatic deposits into each of these funds so that you can always be building up these funds.

Why not do this instead of using Excel? In fact, I did do this for quite a while. I moved my primary savings out of ING Direct not too long ago, not because of the service, but because having all my savings accounts so easily available made them tempting. (note: I later moved everything back to ING because of HSBC troubles). I moved the savings accounts to a single HSBC Direct account, and I manage the distinct layers in Excel. I’ve actually left all of my old accounts in place in ING and when I’m ready to get money from HSBC into a particular fund, I withdraw it from HSBC directly into the matching ING account, so I can quickly see when that money’s there and ready to go.

Having lived in a house that needed constant upkeep when I was young, I know the value of having money on hand to take care of home maintenance. As a new homeowner, that means I’m going to christen a home maintenance and improvement fund so that when such issues appear, I can handle them.

What’s a home maintenance fund? A home maintenance fund pays for the continual maintenance of things that we have right now. This includes things like pest spraying, weatherproofing the deck, having the chimney swept, replacing furnace and air filters, replace worn-out carpets, and so on.

How much will that cost? I’ve heard various recommendations, but we’ve settled on putting away 1% of the assessed value of the house and land annually into the account for home maintenance. This means that an amount equal to 1/12th of 1% will be pulled out of our primary checking each month into that account (for a $200,000 house, that means $166 a month), and then when home maintenance issues occur, we’re free to tap that fund to get the lawnmower fixed or replaced, to buy sealant, and so on.

OK, what’s a home improvement fund? Over time, we’re going to want to upgrade a few things around the house. We haven’t even moved in yet and my wife is talking about planting a small row of fruit trees along the farm-facing edge of our property, for example. Things like this are things that don’t currently exist but can improve the value of the property over time. We want to plant two apple trees and two cherry trees, and if we care for them properly and guide them to adulthood, they’ll increase the value of the home. Another topic we’ve talked about is installing quartz countertops in the kitchen.

We also want a home improvement fund so we can avoid home equity loans, a strategy I talked about last week.

How much will that cost? We estimate that improvements will likely be more expensive than maintenance, so we’re going to sock away 2% of the assessed value of the house and land annually into that same account for home improvements. This means an amount equal to 1/6th of 1% will be pulled out of our primary checking each month (for a $200,000 house, that means $333 a month). This is pretty high, we think, but it does enable us to start thinking and planning home improvement projects and knowing that we’ll be able to pay for them when we decide what to do.

It seems expensive now, but if we look at this as just another bill to pay, it will lead us to success in the long run.

As I’ve mentioned on here a few times before, I’ve been trying out the Volumetrics weight control plan in an attempt to lose a few pounds. So far, it’s been working quite well, but what I found to be quite interesting is that it really exposed one of my worst daily splurges - and now I can see both the health and the financial aspects of kicking this little routine.

See that little Snickers bar wrapper over there? It was my addiction. For years. I would eat one in the morning and one in the afternoon out of the vending machine at work. Seventy five cents a pop, making it cost a dollar fifty a day. Most days, this would literally just come out of pocket change, so it never really felt like a big expenditure, plus I was often quite happy to have that mid-morning and mid-afternoon energy rush that the bar would provide.

When I started Volumetrics, I started looking carefully at the nutrition labels on different items and the Snickers bar made me almost jump out of my skin. Wow! That candy bar alone was worse for me than almost any meal I would eat. I realized that for health reasons I needed to kick the habit, and I knew in the back of my head that it would help financially, too, but I was really worried about that mid-morning and mid-afternoon energy rush.

What did I do instead? Fruits, and a variety of them. I kept high-energy fruits on my desk: grapefruits, oranges, and bananas, mostly, picked up at the store for less than a quarter a pop. I’d eat one in the mid-morning and one in the mid-afternoon as an energy booster and it matched well with Volumetrics, too. I missed the Snicker’s bar, of course, but the routine of a banana in the morning and an orange or a grapefruit in the afternoon quickly replaced it - I didn’t even think about it any more after a couple of weeks.

I was spending a dollar less each weekday, so after five weeks I had lost a bit of weight, which was a nice reward itself. Not surprising to anyone, though, I decided to run the numbers to see how the saving was going. The math here is simple - five weeks of saving a dollar a day means $25 I didn’t have before. If I contributed that $5 a week to my daughter’s 529 account and it returned 10% a year, on her eighteenth birthday the account would have $12,200 in it.

$12,200 for college and a smaller stomach. I think my daughter would be proud of her dad.

Not all that long ago, if I wanted to spend money, I’d look at what was left in my checking account and spend it. I knew in the back of my mind that I should be saving some money, but I never looked at it as a requirement at all. It took me a while to grasp the idea of an emergency fund and that saving up for big purchases is a huge money saver.

To a degree, this even continued after my financial meltdown. I focused strongly on debt repayment at first, knocking out my credit card debts, but not really saving anything at all. I still hadn’t really grasped how to make it work for me.

It finally clicked one day when I overheard an elderly neighbor talking about paying her bills on her phone to her niece. She said that she had to write a check to the bank to put into savings, including it as part of her monthly bill routine. It seemed so simple and obvious, yet I had just completely overlooked it. Here’s what I did to get started.

First, I set up a savings account at a different bank than my primary checking account. At the time, I set up a savings account at ING Direct - it was easy to set up and had a good interest rate.

As soon as the account was ready to go, I immediately began to treat deposits there as another regular bill. I paid most of my bills online already with online bill pay, so I just added a regular contribution to the savings account to the pile of bills. I actually set it up so that I made a contribution this way and there were small additional contributions pulled out of my checking account on a weekly basis ($20 a pop).

Treating it as a bill and at least partially making it automatic made it much easier for me to start actually saving money. At that early stage, I didn’t worry about the idea of an emergency fund or a car fund - I just focused on the idea of building up cash in savings so that my future me would have something to fall back on.

As time went on and this became completely routine, I began to refine my strategy, but I still just treat contributions to savings accounts and investments as regular bills.

What’s the net effect? The biggest effect is that I’m not left with all that much money “floating” from paycheck to paycheck. Most of my money is used to pay a bill, whether it’s a “real” bill or just a savings or investment contribution. The second effect is that I know my savings and investments are growing and I know that if something happened now, I would have lots of cash tucked away. This literally makes me sleep better at night knowing things are secure.

If you’re having trouble saving, try setting up an account at a new bank and then putting in a contribution every time you pay the bills - treat thins contribution as another bill. Then, when you’re tempted to spend what’s left in your checking account, that cash won’t be there to tempt you to make bad decisions.

A couple years ago, an extremely influential article entitled A Simpler Way To Save: The 60% Solution popped up on MSN Money. It proposed a very simple way to budget:

After analyzing our spending patterns over the past couple of years using our Microsoft Money data file, I determined that we needed to keep our committed expenses at or below 60% of our gross income to come out ahead at the end of the month.

Committed expenses:
* Basic food and clothing needs.
* Essential household expenses.
* Insurance premiums.
* Charitable contributions.
* All of our bills — even such non-essentials as our satellite TV service.
* ALL of our taxes.

I’m not saying that 60% is a magic number. It’s a workable goal for my family, and it’s a nice round number. But your number might well be a bit higher or lower. At any rate, it’s a good place to start.

Then I divided up the remaining 40% into four chunks of 10% each, listed here in order of priority:

Retirement savings: consisting entirely of my 401(k) contribution, which is subtracted automatically from my paycheck.

Long-term savings: also automatically deducted from my pay to buy Microsoft stock at a discount as part of an unusual stock-purchase program. The relative lack of liquidity (i.e. the difficulty of turning these shares into cash) makes it harder to spend this money without some planning and a series of deliberate steps. In a real emergency, though, I could sell and have the cash wired into my bank account within three days, so this is also our emergency fund.

Short-term savings for irregular expenses: which are direct-deposited from my paycheck into a credit union savings account. Money in this account can be easily transferred into our checking account, as needed, via the Web. Over the course of a year, I expect to use all of this money to pay for vacations, repairs, new appliances, holiday gifts and other irregular but more or less predictable expenses.

Fun money: which we can spend on anything we like during the month, so long as the total doesn’t exceed 10% of my income.

So, they spend 60% of their income each month on required expenses (food, house, taxes, etc.), sock 10% away into a 401(k), sock another 20% away into long term and short term savings, and spend the other 10% on fun stuff. This general framework became so popular that it has been incorporated into recent versions of Microsoft Money, making it easy for people to organize their finances using this model.

I basically feel that this is a fantastic framework for people who are trying to get their money straight but have no idea where to start. A few little caveats, though:

60% is a baseline, not a hard and fast rule. If you dive in, I suggest starting with 60% and seeing how it goes. If you actually find it easy, try some frugal things and see if you can turn it into the 50% solution (and kick that extra 10% into savings); if it’s extremely difficult, make it a 65% solution for a while.

Frugality helps. Being frugal cuts down on that 60%, making it easier for you to reach that target or, even better, enable you to beat it. Doing things like installing CFLs instead of incandescent bulbs and practicing good shopping habits simply shave money off of what you owe every single month, resulting in some serious breathing room.

The short term savings is basically an emergency fund. As I’ve mentioned before, an emergency fund is one of the best assets you can have because it can earn at a solid rate, plus protect you from going into debt when the inevitable happens. If you don’t have one and are thinking of diving into the 60% solution, I would redirect some of the long term savings into short term savings until you reach a pretty solid number for your emergency fund. Personally, I’m shooting for eighteen months’ worth of emergency fund as soon as I can manage it - a very large emergency fund is personally important to me.

Don’t beat yourself up if you try it and at first don’t succeed. This is true for any personal finance goal, because such goals are a lot like diets: people set very difficult goals right off the bat, fail to reach them, and thus use that as an excuse to fall back on bad habits.