5 Ways To Build Your Savings Rate

It's a strange paradox: Consumers have never had more tools for saving money, yet have never done a poorer job at it.

The Internet age has made unprecedented new tools available to help consumers save money. These tools include:
  • Online retailers
  • Traditional retailer websites
  • Mobile shopping apps
  • Email sales alerts
  • Coupon web sites
  • Review and recommendation websites
  • Auction websites

With so many ways to save money, why can't many people seem to do a good job of it?

Opportunity lost

In addition to Internet shopping tools, a variety of other developments over the past 20 years or so have helped bring inflation down near 1950s levels. Here is a decade-by-decade list of average annual inflation rates from the Bureau of Labor Statistics, with the rate for this decade based on data through the third quarter of 2012:

With shopping tools so prevalent and inflation on the decline, you might expect people to be saving more money. Instead, according to the Bureau of Economic Analysis, personal savings rates are well below the rates of most decades past:

Americans are using lower prices as a means to buy more rather than save money, thus losing an opportunity to get ahead. Many of the shopping tools that aid modern consumers are also marketing promotions that tempt Americans into making more purchases than they otherwise would.

Making your savings count

How can you make sure your savings aren't waylaid by clever marketers? Here are five ways to make your savings count:
  1. Itemize your budget. Plan on how much you should spend on particular items, so when you save money, you can identify the amount saved and direct it toward savings, rather than just having the extra money remain available for additional purchases.
  2. Include savings in your budget. Another effective budgeting technique is to include a set amount of savings in your budget, rather than just looking at savings as what's left over when all the spending is done. If possible, enforce this with automatic transfers into savings vehicles.
  3. Substitute, don't add on. As new products and services become available, think in terms of substituting them for existing expenses, rather than always adding new ones. Examples would include replacing your land line with a mobile phone, rather than having both, or subscribing to a streaming video service instead of having a cable subscription, rather than in addition to having cable.
  4. Put your savings away. Get any money saved out of your checking account as quickly as possible, and into less accessible savings vehicles where it won't be so easy to spend.
  5. Shop for the best savings account interest rates. Squeeze as much as you can out of the money you do save by finding the highest savings account rates you can. Consider online savings accounts, since these often offer higher rates.

Using modern shopping tools purposefully is a great way to save money -- and gain the added satisfaction of using the marketers' tools against them.