In an earlier post, I asked readers to share techniques that have helped them to save. After all, spending less than you earn is the essential first step in investing. Vanguard shareholders tend to be people who’ve long made thrift a habit. And it’s a habit many folks, confronted with today’s tougher economic and market climate, are trying to pick up.

I volunteered that, for me, what works is relying on the “artificial discipline” of automatic deductions, along with considering my long-term investment accounts to be a “mental Fort Knox” that I can’t raid for a vacation or some other nice-to-have purpose.

Let’s see your ideas. (Reader comments are edited for length and clarity in some cases.)

Mental gymnastics

“When I was in my 30s (I’m 59 now), I would pretend that I did not get the raises that I actually got. I would continue to live on my ‘old’ salary and put the ‘new’ money in my IRA until, over a period of years, I was contributing the maximum the law allowed. Only then did I allow myself to indulge in splurges like trips to Europe, etc. Of course, I didn’t start “pretending” dollars into my IRA until I had my other ducks in a row: i.e., socked away a six-month emergency fund, bought a car, bought a home, set up a car-replacement fund, etc. The result is that—after years of contributing the maximum to tax-protected IRAs—my portfolio today, even in this down market, is adequate for me to retire in seven years when I become eligible for full Social Security benefits.”

Continue payments—to yourself

“When we could not afford to pay cash for something, and had to make payments, we never stopped making the payments once the item was paid for—we just paid into a savings account. Eventually, we had enough to pay cash for our needs. We also operated a small business, and when we sold it all the principal went into a ‘mental lock box’ from which we could take money only to acquire items with growth potential. Amazing how it all adds up over time. This downturn is one of the great buying opportunities of all time.”

Pretend it isn’t yours

“I am now retired, but when I was working your ‘Fort Knox’ analogy was also the way I treated my 401(k). I never considered the money in retirement accounts to be mine, so it was never in danger of being spent until I retired.”

Make an imaginary car payment—and work on your marriage

“Four ideas:

• “Avoid car loans. Drive older cars, while putting an imaginary car payment into savings so you can buy that better or new car later.

• “Self-insure as much as possible. Use high deductibles and don’t buy much, if any, comprehensive coverage. Put that imaginary insurance payment into a rainy-day fund instead of giving it to the insurance company.

• “For discretionary spending, use cash instead of credit cards or checks. I take a fixed amount from my ATM each Friday. From that, I tuck 25% away; every once in a while I need more in a week than my ‘allowance.’ The rest goes to savings.

• “Work on your marriage; divorces are financially ruinous.”

Savings as a family affair

“I hate debt. From the time we were married 31 years ago, I have mostly handled the money. Right at the beginning I paid off my new husband’s school loan with my savings.

“We live well and have had nice vacations, beautiful houses completely paid for, good cars (we used to buy new cars, but in the last 15 years have bought almost-new ones, and we keep them 7 to 10 years), all on one salary. I’ve tried to teach my kids that no matter how much they make, they must save something, and automatic savings is the easy way to do it. (When they started earning money mowing yards or babysitting, I started Roth IRAs for them, to get them started on long-term saving.) I’ve also tried to show how living on one salary is possible if you don’t try to buy everything you want (actually, just don’t want so much stuff) and don’t waste money. Don’t live a lifestyle that requires two incomes, so if you have two incomes, you can use one of them for savings.”

Put it on automatic

“I transfer to savings whatever is left in my account at the end of each month. This is in addition to two automatic withdrawals to my investment and savings accounts each month. I try to have a significant amount for the ‘extra’ savings at the end of each month. It’s a challenge.

“One of the best ways to save is through an automatic investment program. I deposit money into my money market account every week, and my wife and I also make weekly contributions to our Roth IRA accounts. I have a higher comfort level with spreading the risk through smaller deposits, made more often—especially in the current market. Kudos to Vanguard for making its automatic investment option so user-friendly.”

Rules to fight impulse

“My wife and I establish rules for saving, investing, and spending, so we don’t sabotage the process through impulsive spending. One rule is, if we don’t have cash we don’t buy it. That rule applies to everything but our home mortgage. The rules for our home are to never spend the equity, make as big a down payment as possible, always use fixed-rate mortgages, and have a plan to pay the mortgage off. Regarding investing, our three rules are: Keep it simple; don’t try to beat the market; use automatic payroll deduction.”

Teach the children

“When I was a child, my parents would double any money I saved in my bank account. The only caveat was that once I put it in the bank account, it stayed in the account. It didn’t occur to me to wonder what I was saving for, but I believe it helped me develop a habit of saving and planning for the future. Now I have the same arrangement with my children.”

But don’t show this to my future children

“I’ve moved out of my apartment, and back in with my parents. But I’m young and can get away with that.”

Think about the future

“We need to inculcate the immigrant mentality, where one is always thinking about future betterment, rather than enjoying a ‘have fun now’ mentality. Americans are getting used to a quality of life where it’s unheard of to lack something. Living way below our means has helped us, and hopefully will help future generations.”

No more instant-gratification culture

“I am not sure people really understand what it means to live beneath their means. Maybe we need to look at our lifestyle, and that will trickle down into our finances. We are lazy if we have no foresight and can’t live without instant gratification.”

Learn delayed gratification to live well

“I live well—vacations, restaurants, jewelry. I just save first, practice delayed gratification, pay cash, and never pay retail.

“It’s amazing how many things you will not buy if you first go home and think about it overnight. I never buy anything over $50 without first sleeping on it. I never borrowed to buy anything except my first house. If I wanted a different car, first the money was saved to buy it. New TV, new computer, vacation … same thing.

“Every raise I ever got, I automatically banked 75% of it for retirement savings. I was living on slightly above minimum wage when I started working, and even after putting the maximum in my 401(k), I was living off less than half of my take-home pay when I retired three years ago at age 47.”

Keep risk in mind

“Having experienced the Great Depression in my early years, I’ve long been aware that saving whatever you can is an important part of getting ahead financially. People who believed that things such as housing can only go up in value have had their heads in the sand. The old adage ‘What goes up can always come down’ needs to be part of anyone’s investment planning.”

Keep it simple—and clean

“Saving is not too difficult. Avoid buying things you don’t need. Save first, then purchase (rather than use credit). Make all decisions (financial, consumer, political, etc.) based on what is good for the earth and for the future of our species. Work toward a clean, healthy environment and a sustainable lifestyle. When you do make a purchase, buy quality, and for the long term.”

Pursue a dream

“I dream of becoming a millionaire. My first investment book was ‘The Millionaire Next Door.’ I found I am a compulsive saver. I make it a goal to save more every year.

“I do not eat out, I do not have cable, I do not use a cell phone. I do not buy new cars; instead, I buy a demo with a few thousand miles.

“I want to learn, and have read 100-plus investment or finance books—all borrowed from the county library. I invest regularly, and try to diversify so I make steady gains and avoid big losses. We will be a millionaire family in a few years.”

An early start

“Compounding is such a great tool to have, so you can never start to save too early. My wife and I started out by taking U.S. savings bonds out of our paychecks automatically, back before there were 401(k) and 403(b) plans. When we had enough accumulated for our daughter’s education, we started contributing to retirement plans at work, and we both accumulated a nice chunk. When we maxed out on those, we put money into IRAs. Now, in retirement, we have no house payment or car payment, and we continue to put away money in savings.”

Now is the time

“Like the 1970s, now is the time to save! Today, using the Internet to shop, rather than taking trips to the mall, allows you to do comparison shopping and save gas money at the same time. Getting exercise at home, through do-it-yourself maintenance projects, is also thrifty. This can be a very good time to develop frugal habits that can last a lifetime.”


• Except where noted, opinions presented in this article are those of their authors, and do not necessarily reflect the views of Vanguard or its management. None of the financial ideas outlined here should be construed as advice from Vanguard. We recommend you consult a qualified investment or financial advisor for guidance on your own situation.

• All investing is subject to risks.

• Diversification does not ensure a profit or protect against a loss in a declining market.

• Past performance is not a guarantee of future results.

We invite your comments on this Vanguard Blog entry. Comments will be monitored and published at Vanguard’s discretion. Comments received prior to July 7, 2009 will not be published.