Spending is not the way to save Posted by money mom at 02/22/08 06:14 PM

Monday’s Tip from Money Mom – Bank of America’s “Keep the Change” and Wachovia's "Way2Save" programs aren’t the way to build up family savings. Instead, pick an amount to save from every paycheck and “pay yourself first” by making an automatic deposit directly into savings every time you get paid.

This week is “America Saves Week.” We have a long way to go to establish the consistent savings patterns that will reduce heartache for our families during times of economic uncertainty. Experts say that every family should have three to six months of expenses in savings.

One of the best ways to save is to just start doing it, and to automate the process as much as possible. Treat your savings account like a bill you pay every month or every pay period, with a direct payment from your paycheck to an credit union in your workplace, or a direct debit from your bank account on payday to your savings account, mutual fund, or other savings spot. Even if you are only saving $10 every pay period, once you establish the direct deposit to savings you can increase the amounts gradually over time.

Earlier this month, another bank announced a program to round up debit card purchases and put the extra amount into savings. These programs are interesting, but they aren’t going to solve the savings deficit for American families.

Bank of America’s “Keep the Change” program rounds up debit purchases to the next dollar and puts the funds into savings. Now, Wachovia has announced Way2Save, which takes $1 out of your account and moves it to savings when you use your debit card, pay a bill online from your bank account, or have an automatic debit taken from your account. Read more about these bank programs.

If you have to, or choose to, keep a low balance in your checking account, using this new program will require extra care to make sure that you don’t incur expensive overdraft fees. One or two overdraft fees or bounced check fees could wipe out a month’s worth of $1 here, $1 there, savings deposits. Since each payment could involve an extra dollar moving out of your checking account, you might use up limited funds in your checking account more quickly than you realize.

Money Mom thinks that a bigger risk in programs like these is that they allow us to trick ourselves into thinking we have a savings program when we really aren’t on track to build significant family savings. The experts said that as of last September, U.S. families owed about 133% of our annual income to debt, including mortgage debt, car loans, and credit cards.

The America Saves Campaign, spearheaded by the nonprofit Consumer Federation of America and joined by many other groups, offers tips to cut back on spending.

If you already have a direct debit going to a savings account or mutual fund, great. See if you can increase the amount just a bit. If you don’t have a regular monthly or every paycheck deposit to savings, it is like we tell our kids about their homework – “Just get started.”

comments (5)

1 Posted by Richard Neva at 02/28/08 01:14 PM

Credit card companies suck! They lure you into their trap by offering low interest rates and then jack them up once you are hooked. I say ... them all!

2 Posted by alice at 02/28/08 03:08 PM

I just don't understand greed. credit card companies charge so much and give nothing back.
they should reward for prompt payment instead they hope you are a minute late so that they can charge an unfair late fee they should charge a late fee for habitual late payments and give you a break for on time or early payments. we are all human and we all want to enjoy life.

3 Posted by Windy at 02/28/08 10:36 PM

Hi Consumers Union folks,
Why not some work on just what the poverty level is
and how long it has been since it has been updated.
And how much of the country lives at that level or is
only slightly better and part of the working poor.
Another project would be to work on credit card reform
and a cap on the usurious interest rate. Also emphasis
in credit card debt and how deeply in depth the average card holder is.
Of course we have trouble saving money. Many of us
don't have anything to save to begin with.
Peace,
Windy

4 Posted by Carolyn Ward at 03/01/08 07:31 AM

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My two cents worth:
Over the years my husband and I have paid out tens of thousands of hard earned cash in interest fees. Credit cards have been our nemeses throughout our lives while raising 3 children. Now our grown kids are hitting the same struggle.

Sometimes, when incomes are not enough to live on, most turn to credit because it's constantly thrown in their face.

If the credit card companies were regulated and fair, this could help low income families, now and then, but instead these companies are allowed to bleed them dry.

There was a time before the Republican stranglehold on our country when you could deduct these fees from your income on yearly tax statements. But Republican Congress arranged to have that slight financial aid taken away.

My husband and I are barely squeaking by financially, in our retirement years and still we find the need to help our kids with their paycheck to paycheck lives.

My daughter struggled to go to college to become a teacher. She needed to intern for 3 months without pay and during that time she ran up several credit cards plus a personal loan to take the place of her salary. She is raising 2 children and had little choice to do anything else.

She made a payment to a credit card a day before the next 30 day cycle began and the card company did not count that as a payment made in the new cycle. The interest fees shot up to 28% because of this so called error. How can that be legal, yet it is. Now when she makes a payment, most of it goes to interest.

Those of us, at the bottom rungs of the income ladder need protecting from these vultures but do we get any? Not on your life! There is just too much money to be made off the backs of the low to middle income worker and that is thoroughly loathsome and WRONG!

Just an added note, we came to my daughter's aid on this bloodsucking credit card of hers and paid it off with one of our cards that gave us a promotional period of 10 months with no finance fees. It's just another robbing of Peter to Pay Paul-The-Credit-Card-Extortionist.
thinkingblue aka Carolyn Ward

5 Posted by Niles Hadley at 03/02/08 07:16 AM

I thought the SF office was dedicated to addressig the needs of lower income people. Your articles are crackling with nothingness that doesn't affect us. Perhaps Money mom (whatever that means) is just too far from removed from the low income people she's suppossedly there to help.