Millie writes in, describing her interesting system of making herself save:

I have my paycheck direct deposited into ING Direct. It comes in like clockwork on the first and third Friday of each month. Then, on the 10th and the 24th of each month, ING automatically transfers about 60% of that paycheck amount directly into my main checking account. I then proceed to live on what’s in my checking account.

Once every few months, I’ll go to ING Direct and do various things with the money. I usually transfer most of it into an investment account – the rest goes to replenish my emergency fund or help with some other short term savings goal.

This really works for me. I hope you share it with your readers.

I think this is a brilliant method for making automatic savings work. It strongly enforces the idea of “paying yourself first” – meaning that personal savings is the highest priority with your money. It forces you to learn how to budget with what you have – if you naturally live paycheck to paycheck, this really enforces some discipline on your financial life. You can throttle it back and forth however you wish – the less you automatically transfer from the savings, the more you will be able to save up for emergencies, debt repayment, and other savings goals.

If a person sticks with this plan over the long haul – no cheating and no dips into the emergency fund for non-emergencies – they can get ahead financially. The smaller the percentage of their paycheck that they transfer, the better off they’ll be.

An Example
Let’s say John brings home about $400 a week. He realizes that with some discipline, he can live just fine on about $300 a week – so he decides to try it out. He signs up for an online savings account, has his paycheck automatically deposited into that account, then sets up a weekly automatic transfer that triggers a few days later to transfer $300 into his main checking account.

John scrimps a little bit – taking on a few cash odd jobs, living lean – but he makes living on that $300 a week work. Halfway through the year, he gets a raise at work – now his paycheck is $425 a week, but he doesn’t change a thing about his savings plan.

At the end of the year, John has about $5,900 in savings. That’s enough to write a check for a fairly reliable car. That’s enough – with another two or three years of this – to have the down payment on a decent home. That’s enough to pay for some night classes or, in a few years, pay for a couple years of schooling leading to a bachelor’s degree.

For a person bringing home $400 a week, $5,900 can be “change your life” money. And all it takes is a year.

Switching to This System
This system isn’t too hard to set up, either. In fact, I use my own (overly complicated) version of this system to manage my own money.

First, start living leaner right now. You’re going to need to build up at least a little bit of buffer in your checking account, because there will be a period where you almost “skip” a paycheck. You’re not really skipping a paycheck, but this system means you’ll start receiving your paychecks about a week or so later than you used to. Thus, you will need some extra cash. Plus, you’ll need to live a bit leaner in order to survive on the smaller “paycheck” that you’ll get.

I usually recommend that people start by trimming some of the obvious fat, particularly through one-time actions. Look through all of your bills and see if there’s anything you can cut – premium cable, excessive cell phone plans, and so on. Work on improving the energy efficiency of your home.

Once that’s done, look at your regular expenditures. What things are you constantly spending money on? Breaking an expensive habit can be invaluable, as can moving away from eating out and preparing food at home instead.

Most people can trim a surprising amount of fat just by doing those two things. The problem is that many people then replace that trimmed fat with other unnecessary spending – but you’re not going to fall into that trap.

Once you’ve built up a little bit of a buffer, it’s time to set up your plan.

Sign up for an online savings account. I use ING Direct and I’m very happy with them, but there are a lot of options out there. An online savings account has the advantage that you can easily manage it at your own computer and also that it earns a solid interest rate.

The real advantage, though, is that it creates a wall between your savings and your spending. With an account at a bank completely separate from your primary bank, you can’t just stroll in and make a big withdrawal on a whim. Instead, you have to log onto your account, execute a transfer, then wait a few days for that transfer to clear both banks. That waiting period gives you time to really think through your decision and it will often convince people that they shouldn’t go through with an unnecessary expenditure.

Once you’ve done that, change your direct deposit at your employer to your new bank. It’s during this period that you’ll have to live lean and pay careful attention to the process, because the direct deposit may not necessarily arrive at your new bank at the exact same schedule as your old bank. Watch your new account carefully to see when the deposit comes in.

Once your first paycheck is in the new account, set up your automatic transfer from the new account to your old checking account. You have a lot of options as to how to set this up.

For one, you can match your current payment schedule – only a few days later – and simply transfer a bit less than you bring in. So, if you have a paycheck that comes in every week for $400 on Fridays, you can have a transfer the following Tuesday or Wednesday for $350 to your checking account. This will leave behind $50 each week in your account, which will really build up.

For another, you can slowly spread out your paychecks. For example, if you’re paid every two weeks (26 times a year), you can have the transfer happen on the 1st and 15th of each month for the amount of your paycheck – $400 – which would be 24 times a year. This would leave behind the two “extra” checks you get each year – a total of $800.

Or you can do both. If you have a weekly paycheck that’s $400 (52 checks a year), set up four transfers a month at $350 (48 transfers a year). This leaves behind $50 each time you make a transfer – a total of $2,400 over a year – plus the extra four checks – $1,600 a year – for a total savings of $4,000 over the year.

The key is to make sure that you’re transferring less than you bring in. How exactly you do that is up to you, but the purpose of this is to make sure you’re leaving behind some savings in the account. If $10 comes in, less than $10 should be going out.

Once the first transfer comes through from your new account to your old account, you’re good to go. The system is in place – you can largely forget about it. I recommend not changing anything if you get a raise – let that raise go entirely into savings. Instead, only make a change if you’re sure it needs to happen in your life. If you find yourself actually spending substantially less than you’re getting into your checking, lower that transfer a bit. If you’re struggling to make ends meet and you’re not wasting money, don’t be afraid to bump it up a little.

Good luck! This is a great plan that can really help kick your savings into gear.

Recently, while digging through the magazines in our magazine rack, I came across the May 16, 2009 issue of The Economist. The Economist is my primary print source for news and it almost always gives me quite a bit of food for thought.

Anyway, on page 82, I found a really interesting article entitled “Smooth Operators,” which discusses some very savvy saving techniques that have developed in nations with developing economies. First, though, is a bit on why such techniques are needed there:

Paying interest on your savings will strike most people as odd. Yet some poor people in the developing world do just that. In West Africa, for example, some people pay roving susu collectors a fee amounting to a -40% annual interest rate for looking after their deposits. [...] a similar phenomenon in India, where a female deposit collector named Jyothi looks after small savings for people in the slums of Vijayawada at an effective yearly interest rate of -30%.

To us, this seems very alien. Why would you bother to put money in a savings vehicle if you’re charged such outrageous fees?

To put it simply, money security is the real reason. Keeping significant amounts of cash on hand can be dangerous, and after doing a risk assessment, it’s pretty clear that to many of these people, it’s better to pay that painful fee than risk the high likelihood of having the money taken in some method – a -100% interest rate is far worse than a -40% interest rate.

But why save at all?

Many of the subjects emphasized [that] controlling the flow of cash becomes all the more critical when income is not just low, but also unpredictable and irregular.

In other words, many of the people using these savings systems have very irregular incomes, so in order to survive during the many lean times, they need to sock money away. And without personal security, they need a service that keeps the money safe, so they utilize the susu (and other local variants).

It’s not that different than the problems that people face in America, where many people have irregular incomes (I myself am one of them). To put it simply, if your income is irregular, you have to save. You can’t spend what you earn, or else you’ll be in deep trouble during the lean times.

What gets interesting, though, is some of the tactics the savers use.

They are acutely aware, for example, of the importance of some psychological phenomena whose effects behavioural economists have only recently begun to explore. For instance, they purposefully seek out commitments to help ensure that they meet their savings goals. Many of the South African women in the study joined several monthly “savings clubs” in spite of having bank accounts. They found that the extra discipline the clubs provided was valuable in itself, because it compelled them to save no matter what.

This is a really important point, one I think is overlooked in western society. Peer pressure is a huge motivator, and using it for savings goals pushes you strongly towards saving. The idea of a “savings club” seems a bit strange, but why not? Investing clubs are quite prevalent in the United States, and they have roughly the same goal – encouraging people to invest and keeping their eyes on the prize.

If you have some friends that are also trying to save for different goals, why not start a savings club? Meet once a month or so to talk about money saving tactics and to share your progress. Knowing that you have to tell the others in the club about your progress will push you to meet the goals you’ve set, lest you look bad in their eyes.

Another solid tactic comes later in the article:

The mother of a Bangladeshi man who found himself unable to stick to his monthly saving goal found she could make him save more by taking out a loan from a microfinance company. The shared obligation of having to pay the regular loan installments meant he abandoned his spendthrift ways.

At first, this might not seem like the best idea. Taking on debt to force yourself into regular savings behaviors?

But think of it from their perspective. That microloan might have a 10% interest rate. On the other hand, the susu down the street charges you 40% interest on your savings. Seems like a good deal to me.

This is not altogether different than when people play games with 0% balance transfers on credit cards. They write a cash advance check from card A into their savings account, then do a 0% balance transfer from card B to card A to cover that check. Then they hold the cash in their savings, earning 2-3%, until they have to pay back the 0% transfer. Along the way, they can usually earn a few bucks, particularly if the amount isn’t large enough to really harm their credit.

In both cases, it’s a crafty way to use the financial tools available to you in an unexpected way to put yourself in a better financial place. Don’t just think of a credit card as a way to buy more stuff. Don’t think of a low interest or a zero interest loan as bad simply because it’s debt. Instead, look at all the tools available to you – and use them together to maximize your situation.

Personal finance lessons can come from anywhere. Always keep your eyes open.

Two years ago (in those economic halcyon days before the so-called “Great Recession”), I wrote a short article entitled Is Not Spending Money Bad for the Economy? In it, I largely concluded (by my own logic) that not spending money – in other words, saving it – isn’t necessarily bad for the economy at at all.

Of course, this article was written against the backdrop of the economic conditions of the time. We were at the peak of six years of economic growth, with only the faintest hints of the economic onslaught about to occur. We, as Americans, also had a negative savings rate at the time – we were actually spending more than we earned as a whole (which meant that there were a whole lot of individuals spending far more than they earned).

Today, we live in a different world. Saving has certainly rebounded – many estimates show that the savings rate is now somewhere around 5%. The economy has certainly slowed as well, and countless trillions have been lost in a 50% dip in the stock market.

So, now’s the time to revisit that question: is saving money instead of actively spending it bad for the economy? Again, I come to the same conclusion – no – but this time, there’s a bit more food for thought on the vine.

The Paradox of Thrift
The whole idea that saving money is bad for the economy comes from the economist John Maynard Keynes, who referred to it as the “paradox of thrift.” (”Paradox of thrift” and John Maynard Keynes is one of those things you can bust out at a party to seem quite smart.) He believed that if everyone saved more money during times of recession, then demand for goods will fall. If demand for goods falls, then economic growth will stall, causing all sorts of additional economic problems (lost jobs, failed businesses, etc.).

It makes some sense on the surface. If everyone stopped spending money tomorrow, the economy would indeed fall apart. There are two big factors that keep this from happening.

First, when demand falls, prices fall, and when prices fall, people are more likely to spend money. That’s why sales always work – and thus businesses regularly have sales. If demand falls across the board, then businesses will lower their prices to get more customers.

Savings Accounts Contribute to the Economy
The second factor – and this is the big one – that makes the “paradox of thrift” fail is that putting money in savings accounts does not remove it from the economy. When you put money in a savings account, it becomes money that the bank can then lend out to businesses. Thus, when more people save, the banks have more resources to pump out to businesses, and when the businesses have more resources, they employ more people, innovate new products, and find new ways to sell.

This is a simple example of why the economy cycles back and forth between economic growth and recession. Right now, we’re in a recession and we’re putting our money away in various savings accounts and investments. That money is then being loaned out to businesses of all kinds who are taking advantage of the very low interest rates available. This means that businesses will soon begin hiring people – reducing unemployment and getting more money out there in the hands of consumers. With more people involved in steady work, more money will be spent and the economy begins to grow. Eventually, people stop saving as much – times are good. The banks then slowly close the taps since they don’t have as many resources for lending. Businesses feel the pinch and begin laying off workers – and we’re back to a recession again.

By saving, you’re actually doing your economic duty, just as you would be if you were buying things. A healthy economy needs plenty of both.

Hoarding Doesn’t Help the Economy
This, obviously, doesn’t include the guy with hundreds of dollars in his mattress or in his safe, or the guy who buys gold coins and buries them in his back yard. That type of saving (I view it as hoarding) does not help the economy at all, as it locks up money in a place where it’s not constantly being cycled back and forth between workers and employers, between businesses and customers.

If you’re concerned about whether or not saving money will help the economy, be aware that it will, but only if you actually invest it in a business (by buying stocks), in a community (by buying bonds), or in a bank where it can be distributed through business and personal loans. That way, you can not only build a safety net for yourself, but you can also do your part in making sure the economy functions like a well-oiled machine.

As I’ve mentioned before, my family has a pretty good sized cash emergency fund, somewhere around nine months’ worth of living expenses. Having that amount of cash available is a very nice security blanket for all of us, and in our savings account, it was earning roughly a 3% annual return. Safety, personal security, and a bit of income isn’t bad at all.

Quite often, though, I had the itch to find something better to do with the money. I eyed putting some of it in CDs (certificate of deposit, which basically means you give a certain amount of cash to a bank for a specified period of time – it earns a higher interest rate than a savings account, but you’re penalized most of that return if you cash it in early), but I didn’t want to lock up a huge amount of it for a long period of time. I wanted to always be able to have that cash when I needed it. After doing some investigation, I decided that a CD ladder was the right move for me.

What’s a CD Ladder?
Simply put, a CD ladder is a collection of CDs bought at regular intervals so that they’ll mature at regular intervals as well. Let’s say I wanted to create a simple CD ladder out of six month CDs. I buy one on the first of each month for six months. Then, on the first day of the seventh month, that first CD I bought matures and I collect a nice return. I can then either buy a new CD for the original amount and pocket the return, just keep all of the return and the original amount for some purchase, or I can buy a new CD for the total return. After that, each month, a CD matures and I can either buy a new one or use it for something else.

If you’re doing this with your emergency fund, you can set it up so that you always have a month’s worth of living expenses available in cash and each of the CDs represents a month’s worth of living expenses. Thus, each month, you’ll have a CD mature, collect a higher interest rate, and you can use the returns to buy another CD (if you don’t need it for an emergency), leaving you with a month’s worth of emergency fund at all times.

Why do this? Why not just keep all of it in cash? The biggest reason is that CDs often return a percent or two higher than your savings account. At ING Direct, for example, the CD rates range from 3.75% to 4.5%, while the savings rate is at 3%. Another reason is that by locking it into a CD, you’re not tempted to spend it.

How Are You Doing It?
I started my CD ladder in September by purchasing three $1,000 CDs out of my cash emergency fund. The total was a bit less than a month’s worth of living expenses. I bought a 6 month CD that returns 3.75%, a 12 month CD that returns 4%, and an 18 month CD that returns 4.5%.

So, in September, I held these CDs:
A $1,000 CD that matures in March 2009 at 3.75%
A $1,000 CD that matures in September 2009 at 4.00%
A $1,000 CD that matures in March 2010 at 4.50%

Notice that the shorter-term CDs don’t return quite as well. Specific rates vary all the time, but it’s a rather constant rule of thumb that longer term CDs return better than shorter term CDs. Thus, instead of just buying a single six month CD, I decided to spread things out to get a better return on at least some of the money.

During September, I kept building our emergency fund as I usually do, putting around 10% of our income into it (which is around 15-20% of our monthly living expenses). I’ll keep doing this for the time being.

At the start of October, I bought three $1,000 CDs again out of the cash emergency fund. This left me with six CDs:
A $1,000 CD that matures in March 2009 at 3.75%
A $1,000 CD that matures in April 2009 at 3.75%
A $1,000 CD that matures in September 2009 at 4.00%
A $1,000 CD that matures in October 2009 at 4.25%
A $1,000 CD that matures in March 2010 at 4.50%
A $1,000 CD that matures in April 2010 at 4.25%

You can probably see where this is going. According to my calculations, we’ll have about four months’ worth of cash living expenses in our emergency fund in February 2009 after buying the CDs each month (remember, I’m still adding cash to my emergency fund). Each month after that, a $1,000 CD matures. I’ll then buy a single 18 month CD for $3,000, which would be enough to sustain my family for a month. And I’ll repeat that for eighteen months.

In August 2010, I’ll own eighteen 18 month CDs which will mature in one month intervals, just like clockwork. If I have my calculations correct, we should still have roughly a month’s worth of cash emergency fund at that point. So, I’ll basically have 19 months worth of emergency fund, almost all of it returning 4.25-4.5% or so.

Here’s what things will look like at that point. I’ll have a savings account with one month worth of living funds in it. Each month, an 18 month CD will mature and the proceeds will go into that account – both the principal and the interest on that CD. At the start of the next month, I’ll buy another 18 month CD worth roughly a month’s worth of living expenses. And as long as we’re able to get by just fine on our normal income, I’ll keep this cycle going, as it’ll serve as a huge emergency fund that also returns at a pretty solid rate.

Why not invest it? This is the typical question I hear about cash emergency funds. Usually, such questions are implying that I should put that cash into the stock market and maybe earn a bigger return. I view this as an investment. Since I’m not saving this money for the long term – it’s a cash emergency fund, after all – I want it to be safe, secure, and stable. It needs to be there for me if I need it.

Another reason for doing things this way Following this plan enables something else interesting as well. When this is actually set up and working, it would enable either me or my wife, without skipping a beat, to go back to school. In truth, my wife is considering the move – she’s looking at perhaps going back to school for a master’s degree in 2010 or 2011. Putting this in place makes such a move quite possible.

If you have a big emergency fund that you won’t need all at once, consider starting a CD ladder with the money. Even a six month CD ladder can create a nice bump in your interest on your emergency fund without adding any risk.

For years, I’ve been on a closed email list with a group of like-minded people who enjoy sharing internet links with amusing comments (think of an email version of fark or reddit). Lately, though, the list has been completely overrun by a group of about two or three people who have become completely obsessed with bargain hunting for stuff.

On an individual basis, the messages are innocuous. For example, one recent email was for Heroes: Season 1 on DVD for $29.95, a pretty strong price. Given the people on the list, of which a large number are lifelong comic book fans, this seems like a worthwhile thing to mention since many of them are either fans of Heroes or are potential fans of the show. If you make a splurge purchase like this once a month, it’s not that big of a deal, and it’s something that many people on that list might enjoy.

The problem comes in when you read ten or more of these messages a day. The Watchmen for $8.99! Guitar Hero: Aerosmith for $19.99! A 50″ LED TV for $799! People were even linking to cheap eBay auctions.

It culminated (for me) with a recent email to the list (emphasis added):

Thanks for the emails guys! I saved so much money this week!

I realized, right then, that this had turned into a “deals” list, so I unsubscribed.

What’s Wrong With Finding Bargains?
A lot of people might read through those prices and think, “Wow! Nice deals!” For the most part, they are solid discounts on what you’d normally pay, and if you were already thinking of buying one of those items, it’s probably not a bad time to go ahead and pull the trigger.

The key part, though, is “if you were already thinking of buying one of those items.” When you go “bargain hunting,” you’re not seeking out a particular item that you need. You’re simply seeking out low prices and accumulating stuff for the sake of accumulating stuff. And, even though an individual item might be a bargain, buying a bunch of items is a sure way to empty out your pocketbook and make it difficult to make ends meet.

Doing that leaves you with a house full of stuff you didn’t really want and a nice big fat credit card bill.

Sensible Bargain Hunting
That’s not to say there isn’t a role for bargain hunting – there is. But when people snap to attention and pull out the wallet when they hear the word “sale” or see a big discount, they’re going at it completely in reverse.

The sensible way to bargain-hunt is to know exactly what you want before you even start looking. If you’ve decided, on your own, that you do in fact want Heroes: Season 1 for your own entertainment, great.

Now’s the time to bargain hunt, with the item you already have in mind. Utilize tools for finding it, like this clever trick for automatically bargain-hunting Amazon for specific items. Use price comparison tools to find the item at a steep discount. Set up saved searches on eBay and check them regularly. Check out retailers and see what their offerings are like.

The important part is to put on your blinders and ignore other items. A big sale on an item you don’t really want is still a waste of money.

Purposeful Bargain Hunting for Profit
One of my online acquaintances – a person I’ve mentioned a few times recently – makes his living selling trading cards online. He actually does very well at this. But he also bargain hunts quite often without any specific item in mind.

See, he happens to be a walking encyclopedia of trading card prices, and he’ll often go to different places simply canvassing for bargains. He has nothing in particular that he wants to buy, but there’s a chance he’ll stumble upon something that is genuinely mispriced. If he finds it, he’ll actually clean the store out of the item. He’s put more than $2,000 worth of trading cards on his credit card in one swoop when he didn’t intend to buy a single thing.

The difference here is that he’s not buying “stuff” to accumulate for personal use. He’s bargain hunting without anything specific in mind, sure, but when he’s buying the trading cards, he’s not actually buying trading cards. He’s buying goods to profit from – and he will profit from them.

In other words, using “well, I’ll make a profit” as a bargain hunting excuse only really means anything if you’re actually doing it. If you see an item you don’t need and didn’t really want, but you buy it because you think it’s actually worth more than the price, you’re still wasting money. The only way it’s actually worth more than the price is if you can actually sell it at a higher price.

Most Bargains Aren’t Bargains
The simple truth is this: if you’re buying something you don’t really need and didn’t really want before you saw it, you’re wasting your money (unless, as I mentioned, you’re going to directly profit from it). It doesn’t matter how good the “deal” is – if it’s something you weren’t planning to buy anyway, you’re just throwing away your money for stuff, and that’s a sure way to put yourself in a worse financial position.

By all means, buy some fun stuff for yourself. Just spend some time thinking about what you actually want – and then hunt for bargains on that item.

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.