However, I don’t necessarily use it to teach people because it’s somewhat of an empty comment. After it’s said there’s a “so what” or “duh” moment. Everybody knows that you should spend less than you earn to keep your money. At least everyone with a basic understanding of math.

The problem is that we still have a nation of overspenders, not savers. People know that 2-1=1, but they are running their lives with a 2-3=0 mentality.

For me, “automation” and “separation” are more actionable philosophies. Which is what this particular post was getting at.

I really like your mention of “artificial scarcity.” That’s something I should blog about soon. My wife and I make a pretty decent amount and so savings has become easier, but we do allow ourselves to feel that scarcity and it keeps us in check. Good stuff. Thanks again for your comments.

I appreciate your distinction between the kinds of definitions of savings.

However, although my definition is more from economics than from PF, I have found that looking at savings as being the difference between earnings and expenses *is* actually useful from a PF point of view, because it emphasizes that at the end of the day, you need to spend less or earn more if you are going to actually save and have it stick.

Then, putting the savings aside is a separate account tends to help it “stick” a lot longer, as it is no longer in plain view everytime you log onto your checking account or go to the ATM.

As a practical example, I leave no more than one and one half months’ expenses in my checking account. At the end of the month, anything above that figure goes into a separate savings account so I don’t suddenly decide I’m rich and go on a spree.

It creates an environment of “artificial scarcity” (I learned that phrase from the book the Millionaire Next Door!).

I might keep less in the checking account, but I decided I liked not having to worry about my balance at all and just having to go to the bank a maximum of one time per month, so I keep 1.5 months’ expenses in there at the start of the month, and shunt any extra to savings at the end of the month.

It’s a change in mindset that I’m getting at.

For cash money that you have on hand, stuffing some of it in a jar and putting in an inconvenient spot or one that is simply out of view is a way of doing that as well. Out of sight, out of mind and won’t be spent. Or, won’t be spent without forethought.

Using an envelope system for food expenses and entertainment expenses is another example of this same phenomenon. YOu make a mental definition of one stack of money as “for” food, and when that money runs out, it seems like you are out of money for food and you have to stop buying it. You won’t be as likely to pull extra cash from elsewhere in your wallet because of this “mental category” and mental separation or wall that you have put up between “food money” and “entertainment money”.

Well–not really. Although setting money “aside” where it is not easily accessible *is* a useful technique for managing savings, it is not savings itself. It might be more accurate to say that “Savings is the difference between what you earned and what you spent.”
Tthat being said, “sequestering” money in a separate mental or physical account (which is what many people call “savings”) is very useful in removing that money from immediate view. Money that is in immediate view can easily be seen as “spendable”. Putting it “away” where it’s harder to see and harder to get at eliminates some of the temptation to expend your accumulated savings. So in that case, what you wrote is accurate. But really, there is no hocus pocus about it and from an economist’s point of view, “savings” is simply the difference between what you earned and what you spent.

I have a partner and a mortgage now though. We tend to pump as much money into the mortgage as possible now rather than using a savings account.

Although our retirement saving comes directly out of our wages.

My tip, focus on the small pleasures in life to spend less.

[...] The Best Way I’ve Found To Truly Save Money at Prime Time Money — Automatically put away your money before you even have a chance to touch it is the best way to save money (in my opinion). [...]

People make the mistake of counting what they earn and basing their spending on how much they count.

Make believe that you earn half of what you earn. Impose your own tax on your income. If the government imposed a tax on your income, you’d figure out a way to survive on what’s left. Why not raise your own personal tax by 20% and figure out a way to survive on what’s left?

Isn’t it amazing how you always manage to survive on what every income you have? Think about that one for a while.

Dave Drew
Your Money Saving Coach
http://www.yourmoneysavingcoach.com