(Note from Dave:  I have had no water at my house for the past 2 days (the well pump went, so the blog has been on the back burner temporarily.  Below is a post that I did for Tiffanie at We Like Money last week.  This is especially timely given my current circumstances.  I'll be blogging about what happened with the water in the next day or so.  In the meantime, enjoy the post!)

One of the reasons personal finance blogs are so popular is that they are a great source for frugality tips. For most people, even though they implement these tips, they are still broke at the end of the month? This is because the money saved often gets absorbed in other spending. Think about your last trip to the grocery store. Let’s say you saved $10 on your trip by using coupons or buying store brands. You know for a fact that you saved that money. But when you go in your wallet, the money isn’t there. Maybe it was lunch at McDonald’s, coffee at 7-Eleven or that pay-per-view movie you rented last week, but the money you saved is gone.

Why did this happen? Unless you use credit cards, you can’t spend more than you have but human nature is that people spend everything they have. I think about when I was a kid going into the neighborhood store with a dollar and buying a candy bar or a pack of baseball cards. I gave the clerk a dollar and they would give me change back. The first thought in my mind was, “Wow, I still have money?” And then I would turn around and grab as much penny candy that I could get with the change I had.

So what’s the solution? Seizing your savings!

Think about your 401k plan (if you have one), chances are you have adjusted your spending so that you don’t miss the money that is going into it. However, if that money wasn’t automatically taken out of your paycheck, what are the likelihood you would save the same amount of money?

The only way to seize your savings is to get it out of your wallet, out of sight and out of mind. Just like when you put money into a 401k, you will adjust your spending accordingly. Think of this plan as your personal 401k, except that it is liquid and you can access the money in an emergency. How do you do that exactly? Here are the steps to seizing your savings that I teach in local financial management seminars in my area:

· Do a “reverse” budget. Unlike a regular budget that tracks your spending, the reverse budget only calculates what you plan to save. Examine every area of your spending and see where you can save money. Get creative, but keep it fun. Frugality is one thing, deprivation is another. Some examples include: Cutting back on eating out from 4x weekly to 2x = $100/month savings. Optimizing cell phone and home phone plans = $25/month savings. Getting rid of HBO (I only got it for “The Sopranos” anyway)= $15/month savings.

· Open a separate checking account. This is the key.  Once you have calculated how much you are going to save, open up a separate checking account at a DIFFERENT bank than where you currently bank. Why at a different bank? The goal is to keep this money separate from your spendable income and if your money is at the same bank, it is merely a transfer away. Also, make sure the account you open is a totally free checking account, with no fees and no minimum balance requirements. Turn down the checkbook and the debit card, but ensure that you have access to online banking so you have access to your account.

· Seize your savings by having the money direct deposited into that account.Many employers not only offer direct deposit but offer “split” direct deposits, where you can deposit a fixed amount or percentage into a second account. Don’t have direct deposit? If you have online banking, you can set up your separate bank account as a payee and have that money withdrawn from your primary bank account after your paycheck is deposited into the bank.

Here is a table to help you calculate the amount you need to have deposited from each paycheck:

If you are paid…You need to “seize”
Every week23% of monthly savings
Every 2 weeks

46% of monthly savings

Twice a month50% of monthly savings
Monthly100% of monthly savings

By seizing your savings and automating the process, your chances for success are greatly increased. Once you seize your savings, it’s up to you what to do with it. Build up your emergency fund, pay off debt or use it for that special vacation you’ve been longing to take, it’s up to you. Best of luck!