Save More, Spend Less: A 3-Step Plan

Last Updated Dec 9, 2010 3:01 PM EST

I recently received an email from a thoughtful reader struggling to kick his credit card habit and save money. I thought it would be helpful to share his plight, which I think many can relate to, and my advice.

Dear Farnoosh,
I have a bit of a problem with credit cards. My partner uses a credit card to purchase everything and pays it in full each month. I do that, too, however I scrimp everything I have at the end of the month to make the full payment. Basically $0 goes into savings, as a result. Using credit cards is also primarily how we spend when we travel as we earn miles on every purchase and then redeem them for travel flights ... I want to feel like I'm contributing to our trips ... What can I do to change my mindset to stay out of debt and stay on track?
Here is my three-step plan for Christopher, as he tries to cope with his credit card dependency issues and find room to save.
Step 1: Pay Yourself First - and Automatically
Make sure your employer is automatically depositing your paycheck into your savings or checking account. Then schedule a regular transfer of either an account percentage or a fixed amount (say, $200) to a separate online account each time. This way you save automatically, before you get caught up with everything during the month. It's painless.
I like online accounts for two reasons. One, they typically offer a higher savings rate than traditional banks. And second, because they're virtual, it's a little harder to access your funds. It's like having a built-in savings motivator. Some examples:, INGDirect and HSBCDirect. You can also comparison shop for the best savings rates at
Step 2: Challenge Yourself to an All-Cash Existence
Give your credit cards a breather. For the next couple of weeks, when you go out shopping or out to dinner, leave your credit card at home. Go to the ATM on Sunday night and take out just enough for the week, then spend that amount and only that amount. Do this for 14 days. You'll be challenged, but you'll find you will make better spending choices when you give yourself limitations.
To make it more fun, challenge your partner to join you for a week of living on cash. You can both take out an equal amount of money - say, $100 - and the person who ends up with more money at the end of the week gets a prize (you two pick the prize).
Remember: Cash not only limits how much we spend, it helps us save an average 20% compared with when we use credit cards, according to year-long trials conducted by the National Foundation for Credit Counseling. And McDonald's has found that the average transaction rose from $4.50 to $7.00 when customers used plastic instead of cash.
Step 3: Have a Talk With Your Honey
Talk to your partner about your savings dilemma. When you're in a relationship, especially one where you are sharing some expenses, communication is critical. Ask for his advice. Ask for his support. It's in both of your best interests if you are able build up your savings. He may have no idea that you are losing sleep over this. And who knows? He may have similar concerns.
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    Farnoosh Torabi is a personal finance journalist and commentator. She is the author of the new book Psych Yourself Rich, Get the Mindset and Discipline You Need to Build Your Financial Life. Follow her at and on Twitter at @farnoosh.


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