The Simple Way to Save Money

Today I would like to discuss the simple concept of saving money. Put a dollar in the piggy bank, don't spend it, and you've just saved a dollar. Sounds easy right? Wrong. Not spending that dollar is the hard part, something that is difficult to overcome. This process becomes increasingly difficult as the amount in the piggy bank grows. I've always found it easy to put a little bit of money aside but as soon as I realize that money can buy something I need (ahem, want), the money is as good as gone.

Let's say that our theoretical piggy bank contains $100, just the amount needed for a new DVD player on sale. My typical reaction is that I've been so good saving the $100, that I should reward myself by spending it all. Bad, bad advice. Sure, I'll get my DVD player, but now my savings plan has to start all over... at zero. How long is it going to take to save another $100? Am I even going to continue saving or is the plan shot? I don't know about you, but starting over with nothing doesn't do much for my motivation department.

Saving money for an extended period of time is a difficult process. One that quickly grows boring for most individuals. More often than not (at least with me), this boredom leads to searching for ways to make it more exciting... and usually results in a new gadget and a depleted piggy bank. After all, it's so much easier to break down and buy that DVD player, rather than letting the money sit there doing nothing. At least the DVD player is more interesting. There is another angle I have found that keeps me saving... setting milestones and rewards.

After my new DVD player (and new TV and sound system and cell phone and...) I realized my savings never grow beyond a certain point. It simply reaches a peak and then gets converted into the latest gadget or toy that I've been itching for. Not a very productive method of saving money if you ask me. This is where I started outlining goals. What am I saving for? How much do I need? What milestones and rewards can I set along the path? I realized then, as I do now, that saving isn't about putting money in a piggy bank. It's about reaching a goal, having fun with it, and rewarding yourself along the way.

Knowing why you are saving is as important as saving itself. If my goal was a new DVD player, then my previous example did a good job. However, if I plan on saving for retirement, a new DVD player isn't going to help me much. Suppose I am saving $500, which can be put into a Certificate of Deposit (CD) at the local bank. Does my new DVD player help with that? I don't know any banks that will take a DVD player and give you a Certificate of Deposit in return.

What if I set milestones of $100 and "reward" myself each time I hit a milestone? Then, once I hit $100, I can spend $10 on a DVD, add some excitement to my savings plan, and still be on track. Once I hit $200 in savings, maybe a new board game is just what I need. Eventually, I will have $500, at which point I can invest in that CD at the bank, earn interest, and set another goal.

The point is continual progression towards a pre-defined goal. I know what I want and how I'm going to get there. Now all I have to do is... do it. The milestones keep me on track and the rewards keep my interest. With a little bit of thought and a helping of discipline, anyone can be saving money effectively. After all, even if it's not easy, it's still simple.