Simple Saving Trick: Pay Yourself First And Then Keep Stealing

by golbguru on May 14, 2007

This is not a new invention or anything; smart people have been increasingly stashing (saving) away money from themselves ever since the advent of the concept of “pay yourself first” (which has existed forever). However, in our case, we sort of *accidentally* extended the concept to suit our purposes - we call it the “pay yourself first - and then keep stealing” concept. I prefer to call it “stealing”, because it involves small amounts of money disappearing from one account (and appearing in other accounts) without we being aware of it (it’s different than just “pay yourself first” - which implies a very conscious effort).

Let me try to explain how it works in our case.

Here is a flowchart of our money-path that summarizes the whole story:

bank accounts and savings strategy

The brick and mortar bank is just a transit point for our money. Over the last few years, we have been tracking our expenses and we have a fair idea of how much money we spend every month on bills and other expenses. We just keep that much in the checking account at the brick and mortar bank and the rest of it goes to our HSBC Direct savings account.

The HSBC account acts as the hub for our financial network - this is in part because of the three online banks that we have accounts with (the other two are ING Direct and Emigrant Direct), only HSBC allows easy addition of other bank accounts - ING and Emigrant require a paper check from the bank you want to add - which I think is stupid given the current popularity of online no-paper-check savings accounts. Since all our bill-payment transactions take place through the brick and mortar bank, we don’t check the status of our online savings accounts regularly - every few months at best (earlier, I used to compulsively check the balances in all accounts almost daily…but gradually I got rid of that habit).

Anyways, sometime in the past, we had to transfer some money to our ING direct sub-accounts for some reason and we used the recurring (scheduled) transaction option at HSBC. I set it up with the intention of canceling it after the required amount of money was transfered. However, things got busy and I forgot about it. A few months later, when I logged in to my ING Direct account, there was a surprise waiting for me there - an extra few hundred dollars among the sub-accounts. :) I made haste to check the transaction descriptions (to see if there was some mistake) and realized that the HSBC account was steadily pouring in small amounts every month.

At HSBC’s end, our account didn’t feel the pain because the transfer amounts were smaller than our monthly savings rate (so the savings were on the rise even while we were siphoning out some money) - and at ING’s end, the balances shot up from almost zero to hundreds of dollars. Although, it’s our own money, the element of surprise played a pivotal role in making us feel good (it’s like tax returns making people happy even though it’s their own money that they are getting back).

Since then, we have created more sub-accounts at ING Direct for various purposes (like electronics, clothes, etc.) and have started stealing a little bit more from our HSBC accounts. We plan on checking the balance in the ING accounts only around Christmas - by then we would probably have hundreds of saved dollars towards various purposes. Those dollars will be used to pay off our inflated credit card bills in full during the holiday season. Some no-guilt shopping there. :)

Sometimes, I think it works for us because it’s a bit complicated in our case with so many accounts and money moving all around us - some of it just hides at places and we don’t notice it. :) [An effect similar to the one in which lots of credit card bills move around some people and then they end up not noticing some of them] - fortunately, we are on the positive side of complications.

Of course, people who are fully aware of their own financial condition and are in total control of their money, hardly need such hacks - personally, even we are doing it just for the surprise element. However, there are a great many people who just can’t keep the money in their savings account and tend to spend it as soon as it shows some signs of growth - this kind of technique would probably work for them - or something along these lines.

Feel free to share your experience with us if you have tried (or are trying) something similar - and whether it is working for you or not.

Some HOW-TO tips for the newbies

To set up recurring transfers from HSBC Direct savings account to any other account :

  • Follow this path: Log in to HSBC Direct –> Bank to Bank Transfer –> Transfer funds; at the bottom of that window there is a “Recurring Transfer” option.

To set up recurring transfers from ING Direct savings account to brick and mortar accounts (or other account paper-check-issuing account that ING can verify):

  • Account main page –> Transfer Money –> Automatic Savings Plan (this is fairly popular among many folks who have ING Direct accounts)

More tips

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{ 27 comments… read them below or add one }

1 Q at $1 Million to My Name 05.14.07 at 1:43 pm

5 stars for the flowchart!

2 Brenna 05.14.07 at 6:34 pm

Interesting take on pay yourself first. Doesn’t HSBC charge to transfer money into another financial institution?

3 Caro 05.14.07 at 7:28 pm

We do something similar with equal success. Currently we have a similar setup with etrade and some reoccurring transfers. I like the flexibility of their timing as well.

However, we first started doing this through our Credit Union by setting up CDs with monthly additions. For folks who are reluctant to set up a number of additional accounts, this is a way to take money out of your active accounts and yet have it fairly accessible in emergencies. (Penalties for early withdrawal are really reasonable at the bank we picked, but check the details before choosing!)

I’m sort of new to reading this blog (and other personal financing sites) so I’m sure I’ll be getting a lot of ideas about banks and CDs (seems like there may be some better options for me) but this is what has worked for us so far.

4 Ben 05.14.07 at 8:24 pm

Isn’t it crazy how half the battle with money is mental. By the way, I like your new header!

5 tanyetta 05.14.07 at 10:42 pm

i love your flowcharts :)

6 golbguru 05.15.07 at 8:26 am

Brenna: Nopes, HSBC doesn’t charge to transfer money to another financial institution - this applies to the HSBC Direct savings account (this is the one that’s getting popular due to high interest rates - the one which we have).

Caro: Are you finding any specific advantages to CDs that you are using? From what I know, now-a-days, 5-year CDs are giving almost the same yield as some savings account - there is a marginal difference, but, after taxes, it will hardly be noticeable. With that perspective, I am tending to stay away from CDs at present.

Ben: Yeah…it’s all in the mind. :) I am glad you liked the new header - I just wanted a change.

Q and Tanyetta: More will come soon. :)

7 ispf 05.15.07 at 9:28 am

Nice post!

I think this would drive me nuts though since I am a *bit* of a control freak especially about money and need to know exactly what is happening :)

Regarding the discussion with Caro about CD: Initially even we used to put savings in a CD too. In addition to getting better interest rate than a savings account, it was difficult to get the money out until the maturity date, which kept the money safe. Now that I have an HSBC account which gives similar interest rate, and am a lot more disciplined, I have kinda bid CD’s good bye.

8 golbguru 05.15.07 at 9:35 am

ISPF and Caro: Yeah..that factor I missed with Caro’s CD love - in spite of similar interest rates as savings account, a CD might force you to keep your savings intact - on account of penalties and fees you may face if you withdraw early. ISPF thanks for pointing out that thought in “…which kept the money safe“. That’s an interesting way of looking at CDs.

Of course, one has to be careful about how much funds get locked in a CD and whether one has enough liquidity for emergencies.

9 Tim 05.15.07 at 4:07 pm

love the flow chart, not liking the concept. if you need many sub accounts to specifically save for things rather than one savings account, i’m all for that; however, not knowing where your money is going is and not being able to account for it is not so good. ok, so you have a mental boost of finding a $20 bill in your pants when you do laundry, but that just means that somehow you were careless with the money. granted, in the flow chart case of yours, you have lost it in the same interest bearing account, which doesn’t hurt you.

I have laddered CD’s simply to meet the minimums that my bank requires for our preferred account.

10 Rob in Madrid 05.16.07 at 4:45 am

Interesting idea. My wife and I made a decision this week that when she get’s paid (she’s paid monthly) that we would set aside what we need for the month and that’s it. No more Credit Carding it. We have this tendency to use CCs when cash is tight. I’ve been budget (tracking my spending) for years but since my wife travels it tends to drain the bank account when they’re slow to pay. But since she’s not on the road anymore it’s less of an issue. Anyways I’ve been thinking of this for a while but it was a comment a friend made (I missed but my Wife picked up on it)that spurred me on to finally do it. She said she has a set budget for shopping and that means by the end of the month she needs to get creative on what to cook. So we’re doing the same, shopping day isn’t till Friday (or Monday if she doesn’t get paid) and we as I would normally have hit the store a few times to get some odds and end this time I won’t. Good news we’ll finally get around to eating some of the food sitting in our pantry.

Also first time I’m not worried (obessed) about the budget, when the moneys gone it’s gone we won’t be CCing it this month :)

11 golbguru 05.16.07 at 8:36 am

Tim: It’s not like we don’t *know* where our money is going. Although, I call it “stealing” - it’s more of a systematic budgeting. We have specific accounts that represent specific “wants to needs” and the money is going towards that. It’s just that we are not fully conscious about it - we don’t track it to the penny - and we don’t track it that often. Also, since the sub-accounts are not in our regular deposit-withdraw channels, we have a lesser tendency to withdraw from them.

Rob in Madrid: Yep it’s sort of similar - although, like Ben says above, “half the battle with money is mental”

12 Caro 05.16.07 at 2:31 pm

Regarding my CDs, yes, part of it is making it difficult to get at the money. The penalties are reasonably low but the idea of any penalty is not appealing so if I can avoid taking money out, I do.

However, now that I’ve been reading your blog for a few weeks I have a lot of ideas that I have not had a chance to work out regarding other ways to save the money. Besides, my CDs compound quarterly, so an online bank account seems like it would be a better option for me.

13 jason 11.29.07 at 10:01 am

This is a great article, I just have one question. Why do you need a central savings hub? Why not just have ing take from your brick and motor bank?

Oh I guess I have another question, how many accounts will these various online bank allow you to set up in your name? Despite the number of accounts you may have in a given bank they are only insured up to 100,000 for an individual.

14 Mrs. Micah 12.13.07 at 5:42 pm

Heh, “stealing” cool idea. Kind of like snowflaking by paid twice…

15 Jett Brenner 02.24.09 at 1:35 pm

“Pay Yourself First” is a great idea! It alters the way you think. This change makes it possible to become someone with real wealth rather than someone who lives from paycheck to paycheck.

When I found this concept, I stopped giving MY ENTIRE paycheck to get “stuff”. By paying myself first, I got to keep 10%! I treated myself like an employee. I would pay myself just like I would pay someone else. After being paid, no one else could touch the money! Over time it adds up quick. Before you know it, you are rich.

16 james 06.23.12 at 1:25 am

Great post here, “pay yourself first - and then keep stealing” simple and clear idea for all, thank your great knowledge sharing. I am waiting for your next articles.

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i like the cool diagram, we have to enjoy the money first, not our bank

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