Smart money lessons from everyday Savers.

The following post by Dan Greenshields, President of ING DIRECT Investing, was originally posted on on January 12, 2012.

Despite some good economic news over the last couple months – particularly the drop in the national unemployment rate – many average American families are still staring down tough financial straits.

One of the biggest reasons many people have trouble improving their finances is that they’ve fallen victim to a fundamental misunderstanding of how wealth works. Too often, prosperity is seen as the result of a single major windfall – the new job, the big raise, an inheritance, winning the lottery, etc.

And while landing a large lump of cash is nice, wealth isn’t really about big wins – think of all those stories about lottery winners that wind up declaring bankruptcy. What’s really important for building a strong nest egg are habits – those daily, unsexy micro-decisions you make with your money.

ING DIRECT Investing just wrapped up an online “Gettin’ Things Done” contest, in which we asked average savers and investors from across the country to tell us what habits they’ve adopted to shore up their finances.

The best submissions all revolved around three simple words: automate, automate, automate. We’d all like to have the self-discipline to make responsible savings decisions. But once that paycheck clears and you’re, say, out at the bar or shopping with friends, it’s tough to stick to long-term financial goals – even for the most committed. It’s much easier to just splurge and promise ourselves we’ll save better in the future.

Automating saving and investing helps – a lot. All it takes is a little bit of paperwork and you can have a preset slice of your paycheck automatically diverted to your savings account and investment vehicles, like an IRA or 401(k). That way, no matter what else you do with the rest of your salary, you’ll have “paid yourself first.”

One of our contest winners, Renee Marx, recounted how when she and her husband got married in 1985, they started a savings plan and at “the beginning of every year we decide how much to put away each month and set it up automatically. As long as our savings goal is met he doesn’t care how many purses I buy and he sleeps without worry.” The plan worked great. Renee and her husband are on strong financial footing. And they recently “celebrated 25 years of wedded bliss.”

Another big theme among contest winners is incorporating small cost-savings measures into daily routines. Those small savings might not seem like much at the time. But after a year – or ten years – they can add up to a huge chunk of change.

One of the more straight forward recommendations comes from Joshua Mustacchio, who told us that “every time I break a dollar I put the change into a piggy bank.” Likewise, Sherree Flowers keeps “loose change and either on a weekly basis or a monthly basis total[s] the savings and add[s] the savings to grow [her] penny investment account.”

Winner Angel Ho makes a point of “exchanging service with [her] friends or neighbors,” like “exchanging gardening service for baby-sitting.” She also recommends that if you like cooking, “Cook your roommate a dinner in exchange for cleaning up the dishes or vacuuming the carpet.”

Smart, commonsensical cost-cutting techniques like these can reap big financial rewards over the long term. And they don’t require you to radically readjust your behavior. Strong finances are enabled by good habits. These suggestions from everyday people can easily be incorporated into your financial life – one small decision at a time.

Tell us Savers, do you have any cost-savings measures to share?

  • Sue

    I do the same as some of the others here. When I break a bill I put the extra change in my wallet in the savings fund I have a home then when I have some saved up I put in ING direct to go towards a vacation or paying off a debt. Also, any money I find I figure is not my money so I save it up and donate it to charity. I also, have money directly deposited into my savings account every pay day. Each time I get a raise I increase that percent of the raise into my 401K.

  • Sue

    If you put all that money into one ING account you will earn more in interest over time. I do see your point though about putting it in separate accounts to handle different things which also helps you to see what money you have available for each expense.

  • Sue

    I learned something the hard way when we bought our first home. We did not know that the banks approve you for a few thousand dollars more then what you need just so they can get the interest on that extra money over time. Do as KML suggests…makes sure when buying your home that you borrow only what you need and not anything extra. I wish we would have thought about this before we bought our home.

  • SLH

    Ok, but why don’t you just “pay yourself” by having the payroll deductions go to your Savings Account? You are not earning any interest the way you are doing it now! The govmt. is earning the interest, Not you. At least you can watch the interest mount daily with your ING Savings Acct or CD’s.

  • October58

    It is great that you have paid off your debt and keep paying in full but I never understood the “money in a jar” concept. I always put my money in the bank so it can earn interest and still treat myself to a pedicure when I want it. I just figure out a certain amount that I can spend on luxuries like that without having to see if I have enough in a jar since the interest has increased what would have been in there in the first place.

  • Sloane fun 1981

    We’ve lived in the same home for 21 years. My car is 21 and runs great. Didn’t bother to have kids, have not been to a restaraunt since 199y-something. Can’t stand movies, cook alot, shop at a grocery store far away by Disneyland. Take lunch to work. Quasi-reclusiveness is a money saver.

  • Sloane fun 1981

    Are you being sardonic? I truly hope so.
    Less time at the nail ‘saloon’ and more time figuring out spelling, etc., might help you get a job to tide you over if the $ is all blown through before needing another sucker to rip off.

  • Kleinj2

    Pack your lunch, and bring your coffee or coke with you! Working isn’t as friitful if you ate making a daily donation to Starbucks or the cafe!

  • MrP

    1st timer here. A ll comments were great. Learned a lot

  • pcurry

    You still get the same percentage rate on each account.

  • pcurry

    I’m a cat person but, sorry, I would have had the cat put to sleep for $50 or less. Yesterday I had to have my 14 year old cat put out of her misery. If it’s money for the old cat or my family, I choose the family. We don’t have jobs and not much besides savings so there was no thought to fixing an old cat up that would have had just a few years left at most. The cat had a good life and she went peacefully.

  • pcurry

    I agree.

  • JSS

    When shopping, I always start with the question, “Is this something I want or something I need?” It’s a simple and effective heuristic that has worked for me for decades. I give into wants from time-to-time but not on a regular basis.

  • Gloria13w

    Live well with less
    I like this post about the power of being able to walk away

  • Gloria13w

    sorry; forgot a vowel–hey they cost $$

  • Hrldfee

    Incorporate ING into your “essential” monthly expenses, meaning “pay” them as you would your creditors, morgage, insurance, rent, or cable bill.
    H. Fee

  • Adline1017

    How can I

  • bytecruncher

    I have a Subaru credit card from Chase. I pay off the balance at the end of every month. What is great about this card is that it pays you 3%. Hence when I have charged $3333 on the card over three months or six months, I receive a Subaru Bucks voucher for $100. These vouchers can be used to pay for Subaru car repairs at Subaru dealers. They can also be used toward the purchase or lease of a new Subaru.

    I put some money into a savings account every month for car maintenance. I know that sooner or later, I will have to buy new tires, a new battery, or have the brakes serviced. Because I have Subaru Bucks to help pay for my car maintenance, the amount of money that I’m saving each month is half what it would be without the Subaru Bucks. The Bucks also make car maintenance costs less painful.

    Take care of your car and it will take care of you. The most important thing that you can do for your car is to change the oil and filter every three or four months or every 3000 miles. My current Subaru is sixteen years old.

  • Broken Hiker

    I have a budget. I put money aside each month to pay the big bills like house taxes, house insurance, car taxes, and car insurance. When these bills come in, the money is available to pay them.

    One of the budget items is clothing. Some people could spend a $1000 a month on clothes. However you don’t NEED to do this if your closet is not empty. Be realistic about what you need to buy.

    Another one of my budget items is FUN. What is the point of living and working without some fun in your life. However, again you have to be reasonable.

  • Dina Marie

    My husband and I had our own business during the worst economic crisis in history. most weeks we barely had enough to eat to keep our business afloat. We learned a few things. A change gets tossed in a piggy bank. We even used a water empty water jug, and at the end of the day all of our singles go into it. We make sure we use all of our food before we say, “there’s nothing in the house”. We get creative with what we had. We did a great deal of staycations….and visited local beaches, parks, museums, and got to know our own community better. We started taking our lunch to work and that saved huge amounts!

  • Suhe713

    I love to read, but books have become too expensive. So, I started using my local library – might have to wait a little while for the more popular titles. But, they are free and I don’t have a stack of books to take to the used book store.

  • Recession Saver

    I do the exact same!

  • Recession Saver

    After reading all and everyone’s comments, I wanted to dedicate this next comment for all of those that are BIG credit card fans. This is a two parter which I believe anyone who owns a credit card can benefit from.

    I personally love credit cards! (Preferably owning no more than two!) Everytime I go out, I look for the credit card logos. When I notice them they get me excited to be prepared to use my cards. What I do is I charge all of my charges on my cards and I will explain why at the end of this posting. When I am amongst friends, I ALWAYS charge the whole bill and take ALL the cash I can get.

    Reason #1 I ALWAYS charge to my credit card is because I get back at least 1% cash back if not 5% in rotating categories. Getting this cash back is like getting a discount or having a virtual coupon and that means money back in your pocket! The larger the charge I put on my credit card and taking the cash from my friends, the more money I get back under their expense. In a strange way, it’s almost like you getting a free meal by using your card with all the cash back you get back from using the card.

    Reason #2 using the card allows me to hold my $$$ one month longer before I have to pay it back. That means I can keep my cash in a savings account or invest that money ahead of the time ie. No penalty CD or even the stock market!

    Now for the two parter: After I get the cash from charing the full bill to my credit card, I take all the cash I get and make a deposit in to my savings account the next day earning interests on top of the cash back I get from the card. Do the average math, 5% cash back from the card and another 1% return on interest on your savings account. That’s almost 6% interest you make for the usage of a credit card. Do that 12 times in a year and think about how much you save in a year!

    For more tips on how to save, leave me a reply. I may have more tips on saving and investing for your situations…

  • C.H.

    At a mere .08 interest, the interest amount is insignificant, and it’s way too easy to spend the money when it is at your fingertips (and I am VERY financially disciplined) A couple hundred dollars a month is not nearly as gratifying as having a check arrive for $3500. It’s much better FOR ME than saving small amounts every month.

  • Memor17

    At the end of the month when all the bills are paid, I alot a certain amount left and write myself a check to put into a savings account. this way it seems like just another bill to pay each month.

  • Tba001

    This does not make any sense. My credit card has 12% int.
    So, even if I get 6% using my card, still does not make up the 12% the card charge me!!

  • Bobbi

    “organized with boundries” or “show me the money”

    I was was just trying to figure this out myself. There are benefits of both, but neither matter money wise. They both add up the same. The only difference is how do you feel you are doing better. seeing bigger numbers or seeing it pre-organzied and budgeted? simple math if you have 3 accounts two accounts with $5 and one with $15 at 80% each $5 gets $4 in one year. and the $15 does $12 in that year. 4+4+12 = $20 or 5+5+15 =25 at 80% = $20
    Do you like seeing your money layed out, and add it up yourself, or do you like seeing the number add up quickly without the math?

  • Recession Saver

    The strategy you need to do to execute this so that it works in your favor is ALWAYS pay back your card in what ever amount your charged up to. Credit card companies hate people who pay up in full and on time because they lose money but, make tons of profits for those who pay late. My best advice is to get how ever many cards you have down to using (2) and PAY DOWN the card with the HIGHEST interests back first to get yourself out of deeper debt due to the high interest rates. The more debt you accumulate on the higher rate, the more it compounds against you.

  • Sandy

    This was so much fun –thanks for starting this forum. A lot of good tips! I bet that 5 years ago we would have all had a different mindset. This depression (called a recession) we are living through has made us all wake up and smell the roses. Not only were we living the American Dream, we were all living in a dream! I am a senior, retired, widowed. I live on SS and a very small pension from my deceased husband, which will run out in a couple of years. My house is paid for (thanks to some money left by my in-laws when they passed) — smartest thing I did. However, the taxes are killing me — but still I manage because I grew up poor in Canada and learned frugal ways. I cook from scratch, use my coupons, my daughter has a huge veggie garden and we can and freeze. When I go out to lunch with a friend, we usually try to split something and always choose a restaurant we have a coupon for!! I shop at Good Will and other thrift stores and have found some wonderful expensive labels there! I know how to fix and repair things — if it is out of my league, I call my son, who is extremely handy. I sell Avon which helps with some “running around” money. I have two credit cards, one Amex and one MC and pay them off every month — once in awhile I carry a small balance, but get rid of it as soon as possible. I paid cash for my small car (VW Beetel, previously driven) which gets great mileage.

    Hang in there everyone — keep up the good work. You will survive these tough times and come out the other end more powerful and a lot smarter!

    Sandy in Naperville, IL

  • Sandy

    Oops! I DO know how to spell Beetle — sorry!

  • beenaroundtwice

    Given the rock bottom interest rates that even ING offers [and they have been dropping even lower lately], it makes almost no difference in terms of earnings to consolidate those accounts, and having separate accounts may well be a good idea in terms of keeping track of expenses for different items. However, I figure in a few years interest rates may spike up some.

  • Cjanddave

    We also cut out the Starbucks expense. My husband purchased a keurig machine and we buy the keurig cups in bulk so the cost is reduced. I now make excellent coffee at home, even iced coffe, that I prefer, especially since it costs about 50 cents a cup versus $4. I was upset with my husband when I came home to find he had spent money on a machine I had no idea about. I now view it as an investment as we are saving a great deal. I have no urge for Starbucks any longer.

  • David

    One thing I do, or have been doing (and I want to be careful when I say this), is to use no-interest offers for certain items that I want. Let me reiterate/prerequisite: YOU SHOULD ONLY DO THIS IF YOU ARE SOMEWHAT FINANCIALLY DISCIPLINED! [This is really more of a credit tip rather than savings; what I'm about to say is how to be smart with credit, not exactly how to save.] If there’s an item, particularly a large one, that you really want/need, look for a financing offer with no interest. For example, eBay from time to time has a Bill Me Later offer attached where you can finance with no interest for 6 months. Additionally, many retailers (like Best Buy) have similar offers where you don’t pay interest for certain purchases during an allotted amount of time. You pay on time before the period is over, and you don’t get charged extra. The fine print here is that the former (Bill Me Later) doesn’t have monthly payments, while the latter (Best Buy) does. Even though there’s a no-interest grace period, minimum monthly payments have to be made. As I said, use this method wisely. The lesson here is that that item that you just gotta have is attainable, if you’re smart with your money. I’ve gotten a laptop [which I'm using right now to type this], iPod touch and footwear among other things doing this; you can have things you desire too without spending more… and make the creditors mad potentially in the process.

  • Melannebeck

    Regarding the comment below about putting the cat to sleep… Many people treat their animal as a member of the family, and I commend Pwolf for her wonderful treatment of her animal. Glad the kitty is doing well! :)