How to Start a Savings Plan

by Sean Bryant on April 16, 2012

Most Americans’ first encounter with a savings plan comes during childhood when their parents give them a ceramic piggy bank with a little slot in which to insert coins. In this crudely unidirectional system, the only way to actually retrieve the money is to take a hammer to the little guy. As adults, looking to the future through the settling dust of a most unsettling recession, it is obvious there is a kind of genius to this design. The physical barrier to reaching one’s money made little withdraws impossible without sacrificing the savings project as a whole. The lesson this imparted could actually help Americans develop a system for personal savings that will serve them well in the current economic conundrum.

Economists and financial planners are a bit at odds about what it’ll take to put the economy back into gear. While many economists encourage spending as a way to stimulate economic growth, financial planners recognize that un-checked spending without first establishing some personal savings is actually what led to financial catastrophe for many people in recent years, and is no long-term solution to a sluggish economy. Personal savings allows individuals and families to weather unexpected expenses without incurring debt, to stabilize their spending by prioritizing necessities, and most importantly, to amass capital that can be parlayed into big-ticket, long-term investments, like the purchase of a home.

According to the US Department of Commerce, Bureau of Economic Analysis’ 2012 Personal Income Report, nationally, disposable personal income (DPI) among Americans increased by $28.2 billion in February 2012 over January 2012. Before this can be celebrated as a victory, it is important to note that during that same period, personal consumption expenditures (PCE) increased by $86 billion. It doesn’t take a finance degree to realize there’s a dismal incongruence between income and savings in America, but Americans can still take heart in knowing that there is most certainly room in their household budgets to establish a savings plan if they’re willing to apply the discipline necessary to get started.

Treat a Savings Account Like a Savings Account

Most people worry about having enough income to cover housing, food, and healthcare, and have little financial wiggle room to even consider socking away some of that money for a rainy day. However, according to financial guru, Suze Orman, who recently established The Piggy Bank School of finance for kids; anyone can reinforce these lessons through discipline and repetition and carry them forward into adulthood by sticking to the “piggy bank” mentality developed during childhood.

While ATMs are miracles of convenience, they usually link to both a checking and savings account. This is, of course, useful in emergencies, but when finances become tight, it seems that folks end up being besieged by a series of monthly emergencies, and their savings account ends up being treated more like a second checking account. By resurrecting the “piggy bank” mentality and keeping the savings account intact, average earners can create a virtual space where money will be safe.

Establish Modest Goals 

The virtual “piggy bank” will inevitably be broken if an eager saver over-deposits in the first couple months and then is forced to dig back in to cover monthly expenses.  Even squirreling away $20 per paycheck will begin to add up over time. In fact, most employers and banks offer a direct deposit option that will transfer a portion of an employee’s paycheck directly to savings, allowing one to save without having to suffer a sense of income loss.

Trim Expenses and Stick to a Budget

The heavy lifting of a savings plan still requires a realistic assessment of one’s income and the myriad ways it flows out the door. Although there will likely be some discomfort that comes from arranging monthly bills next to each other on the kitchen table to crunch numbers, it can also be quite liberating. Most people find that they do have a surplus income each month, however modest it may be, that ends up getting spent in surprisingly unnecessary ways. The simple truth is that by trimming those little expenditures, one’s monthly income can seem to increase without adding an actual new source of income. Most financial experts agree that Americans who are experiencing financial woes while still paying for cable TV and internet access on their phones, or that have a monthly car payment, or who are enjoying a daily latte, haven’t really given their monthly expenses the scrutiny it deserves.

Hang In There- This is Leading to Something Good!

While children are known to be impulsive, the genius of the piggy bank is that it limits access to dimes and quarters that might be spent on candy or Pekemon cards, so that the spending power of this change can be amassed and accessed later as dollars that can be spent on items that provide more long-term satisfaction, like an MP3 player. Even the most impulsive child can understand this. Of course, the financial goals of adults are more complex and expensive, and can sometimes seem forever elusive; a new home, a vacation, a solid retirement fund. However, it is important to keep in view that money placed in savings is not money lost, but rather, is a means to fulfilling long-term goals and life long dreams.

Of course, savings accounts are intrinsically superior to a ceramic pig. Savings accounts not only generate interest for individuals, they also collectively support a bank’s ability to offer loans to small businesses and mortgages to prospective homebuyers. In this sense, the act of building a savings account is actually a small but important contribution to the collective recovery of the nation’s economy.

In the end, the mental discipline provided by a “piggy bank” mentality can help smother financial temptation in all areas of spending, whether it be avoiding an impulse purchase while in the check-out line, or cutting short a late night online shopping spree. While there are many ways to start a savings plan, perhaps one way is to reawaken the surprising financial fortitude of youth embodied in the piggy bank. By harnessing that discipline Americans can begin to take concrete steps toward achieving their long-term goals and dreams for the future.

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Sean Bryant

Sean Bryant created OneSmartDollar.com in 2011 to help pass along his knowledge of finance and economics to others. After graduating from the University of Iowa with a degree in economics he worked as a construction superintendent before jumping into the world of finance. Sean has worked on the trade desk for a commodities brokerage firm, he was a project manager for an investment research company and was a CDO analyst at a big bank. That being said he brings a good understanding of the finance field to the One Smart Dollar community. When not working Sean and he wife are avid world travelers. He enjoys spending time with his daughter Colette and dog Charlie.
  • http://www.stepawayfromthemall.com/ Nick

    I like the idea of literally piling up your money for a little while… But definitely like seeing anyone on a written budget and following slow, steady steps to save up some cash.

  • http://www.modestmoney.com/ Modest Money

    For some it might be a good idea to make their savings a little less accessible. They could try an online bank such as ING Direct or they could put that savings into other kinds of investments. Besides, a bank savings account just gives such a small interest rate that it is barely worth it. When you take inflation into account, they are actually losing value on that money.

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