Are Forced Saving Mechanisms Good?

I just returned from meeting two of my long-time friends for dinner. The three of us have known each other for some time and have been through many career ups and downs.  Interestingly, all three of us are now interested in budgeting, spending less and simpler living; a big contrast to our earlier years when we were three young(er), high-salary, much higher-spending persons.  We talked a lot about the reasons why each of us was trying to save more money and career flexibility was certainly at the heart of the decision.  Here are various mechanisms that were being tried to force ourselves to a higher spending level.

Automatic withdrawals form payroll – All three of us were using some form of an automatic withdrawal from each paycheck to filter into our savings and investment accounts.  I use ING to sweep money into longer-term categories and an automatic investment into Vanguard.

Cash envelope — one friend Karen was using the cash method, especially for going out to dinner which would place a limit on her spending for the evening. Liz and I do not use the cash system, preferring not to carry large amounts of cash.

Budgets — Each of us currently uses a monthly budget, although a budget alone seemed not to have the disciplining ability to keep spending in check.

Saving goals — Liz seemed the most effective at having explicit goals for saving.  Since she’s the only one of us with children, some of the goals are around accounts for her young daughters’ college educations.  Karen is good about saving up for big travel trips that she takes each year.

Recording spending in a journal — I seem to be the only one who records spending in a journal (in part to track how much is actually spent during this year, the first year that I’ve tried it).  It’s a good discipline and has made me reflect on spending and understand my budget busting areas better.

Overall, the three of us are in pretty good shape financially.  Although there were a couple of poor real estate decisions here and there and some high-spend areas in each budget, it seems we’ve made the transition to saving more and spending less, with some techniques often highlighted in personal financial blogs.  Interestingly, a few years back, we would not have discussed saving and personal finance when we got together for dinner.

shared at this week’s Carnival of Personal Finance