What a week! Three major projects have kept me sprinting since January, and ALL wrapped this week!

We've finally chosen interns for my company. I presented a talk I've been developing for months, for a packed crowd of 300 people at the Web 2.0 Expo (on "sparking a crush" -- how to get people to fall in love with your site). And I'm writing my final blog post for the Pay Yourself First challenge!

Seth and I wanted to go out and have a big celebration dinner -- and tossed around a few of SF's finest -- but we ended up here at home, snuggling on the couch, eating a frozen pizza and watching a DVD we've seen a few times... and we couldn't be happier.

It's amazing how much can happen in 6 months -- some of the other challengers have had some major life changes -- but looking back, all I can say is, we've been incredibly blessed.

Through this diagram, which I created while procrastinating to analyze the reasons for my procrastination, I determined that the love of money is indeed the root of all evils:

Tired < Only 5hrs Sleep < Caffeine < Free Coffee < Can't Resist < Love of Money (the root of all evil)

Although wanting to save money is generally a good thing, I often find myself having to fight off the "starving student" mentality -- the tendency to hoard money, food and stuff like there's no tomorrow.

When I was in college and not on a meal plan (because they're usually a waste of money!), I took up every free food offer I could get! Fortunately (or unfortunately for my diet!), when you're in school, free pizza is the lure for just about everything, so I was able to eat for free quite a bit. (The rest of the time I just ate Ramen or Subway using my student discount card...)

Unfortunately, I'm still programmed to think that way. I don't actually think the mentality came from college. It's kind of a natural side effect of being so careful with money. (I've also heard it called the "Great Depression" mentality or having a "spirit of poverty" -- or just being stingy.)

I tend to penny-pinch and don't spend money on things I should sometimes (like getting a haircut). I have a hard time not counting the cost when treating others. I'm irrationally drawn to free things: When there's free food at work, I often end up eating too much; when there's free schwag at a conference, I can't resist taking it. So I end up eating food I don't need and filling our closets with cheezy t-shirts we don't need as a result.

The reality is, I have all that I need and more -- I always have -- and I don't need to cling to things. I don't need to eat all the cookies at work -- there will be cookies again some other day. I don't need to worry about what I'll eat or drink or wear. I don't need to extract the maximum utility out of every dollar.

More often than not, I just need to let go.

After all, as a Caedmon's Call song puts it:

This world has nothing for me, and this world has everything.
All that I could want and nothing that I need.

Well put!

Aw -

In the midst of a streak of 12-hour days, I've still had a little time to find ways to maximize our savings, both for now and for the future:

I put our retirement savings (Roth IRAs) on auto-pilot -- for the next 10 months, Seth and I are each automatically transferring $500 each into our Roth IRA accounts in order to hit the $5000 maximum for 2009. It will go into Total Stock Market and Total International Market index funds, which are getting increasingly inexpensive these days. If you don't know about Roth IRAs, they're one of the best ways to save for retirement. It's basically a savings account that you can put up to $5000 in every year. Unlike 401k's, you can take the money you put in back out at any time, without penalty, and you can have a lot more control over how it's invested. Unlike Traditional IRAs, the money you put in is after-tax... which means you don't get a tax break now, BUT you will get an even bigger tax break later -- because when you withdraw your retirement earnings years from now, when that $5000 has turned into $50,000, you don't have to pay taxes on it! You can learn more about IRAs here: http://www.fool.com/money/allaboutiras/allaboutiras.htm

I adjusted our withholding to make sure we won't get a huge tax refund next year. What, you say? Isn't getting a huge tax refund a good thing? After all, TurboTax and H&R block all advertise "Get your biggest refund today!" But guess what? That's just silly and deceiving. You get tax refunds when you've OVERPAID your taxes all year by not optimizing how much you're paying. That means you've loaned the government money all year that you could have invested or saved for yourself all along. So if you get a huge refund this year, consider adjusting your withholding (ask your HR person at work for help). Sure you won't get a fat refund next year, but you'll get a bigger paycheck every month, and money now is worth more than money later!

I finally got my W-2's this week, so my next blog post will probably chronicle our adventures using TaxAct -- TurboTax's MUCH more affordable cousin (TaxAct is currently $16.95 for both federal and state vs. TurboTax's $25.95 for state alone), that makes filing your tax return as easy as answering a bunch of questions. We've used TaxAct for years, and it's been totally reliable. We've even done taxes in TurboTax, TaxCut, AND TaxAct just to try them out and compare, and TaxAct was just as good.

I discovered that Bank of America and Borders Rewards both offer customers access to some massive discount programs for online retailers: Bank of America's "Add It Up" program offers customers up to 20% cash back on purchases from almost all the major online retailers, from the Apple Store to Buy.com (my main electronics destination). Borders Rewards offers members access to similar discounts and offers. Everyone is competing hard for your business in this economy, so that means there's a lot more discounts out there, you just have to go out and look for them.

I've been saving money on food. For one thing, I've been eating a lot of free lunches at work. That's the nice part about working long days and nights and having lots of client meetings. We've also been sticking closely to our food budget -- we splurged one weekend, so the next weekend, though it took some discipline, we made up for it by not going out to eat at all, and instead making ice cream and other yummy food together at home.

So that's my weekly savings wrap-up! I hope it will set you onto a few ways you can optimize your savings, both today and for the future, as well!

Wrapping up my series about how design can help people save money (a.k.a., how I, as an interaction designer, could help others save), here are the last two principles:

Equip the mind to control the flesh.

Arm the mind.
Humans are conflicted beings -- "the spirit is willing but the flesh is weak." When we're feeling rational, we try to find ways to reign in or control the flesh -- we put our alarm clock on the other side of the room, we rid our houses of chocolate and sweets, and even freeze our credit cards in ice water to force a waiting period before making impulse buys (Google it!). The mind wants to be able to control the flesh. Stickk.com arms the mind to do so by letting people create goals and set up their own punishments/rewards for meeting these goals.

Leverage social nudges.
Everyone's been talking about the energy bill that compares you to your neighbors. But less known is the "boomerang" effect that it had. According to Nudge, when people were told their power consumption was less than their neighbors, below-average users actually increased their use. But when the message was accompanied by a smiley face icon, this effect disappeared. If even an icon of social approval or disapproval can make a difference, real social pressure could be even more powerful. What if people could hold themselves accountable by keeping public spending logs, the way TheDailyPlate lets people keep public food logs?

Make saving as easy as spending.
If it were as easy to save as it is to spend, the mind wouldn't have to plot against the flesh so much! Charities know that the checkout line can be a powerful place to solicit donations -- adding a few dollars to your grocery bill to provide milk to school children feels painless. What if there were a way to leverage these "open-wallet" moments to prompt savings? Instead of asking if you want cash back, what if the register prompted you to transfer $20 to savings?

Architect complex choices carefully.

Complex financial decisions -- like setting up a 401k -- are especially challenging and full of hurdles. People procrastinate about joining 401k plans because they don't know how much to set aside, and once they do, they don't know how to allocate it. When they do set it up, people are often unwittingly influenced by the language used, the options offered and the order in which they are presented. For example, when offered a choice between just two funds -- an all bonds fund and an all stocks fund -- people tended to engage in what Nudge calls, "naive diversification" -- splitting their money 50/50 between the two. "Choice architecture" can have significant and costly impacts on people's futures, which means there is a lot of responsibility to get it right. Nudge offers much more detailed insight into architecting complex choices.

These are some of the most interesting principles I've been reading about, thinking about or uncovering through work on consumer-facing finance tools. If you have other ideas or principles you can share, I'd love to see them in the comments!

Here is the second set of design principles that anyone designing for consumer finance -- banking, investing, billpay, money management tools, insurance providers or any business selling "savings" as a value proposition -- can employ to make saving a little easier for us all.

Make the abstract concrete.

Map concepts to real-world counterparts.
Budgeting doesn't have to feel like complex accounting. Financial advisors have been recommending the easy-to-grok "Envelope Budgeting System" for years. Instead of treating budget categories like database categories, some budgeting software lets people divide their money into virtual "envelopes."

Translate dollars into reality.
Retirement calculators often project savings in terms of how many "millions of dollars" you'll have saved by retirement. By what does a million dollars mean 20-30 years from now? Is a million dollars a good thing or a bad thing? Instead of using loaded numbers (who doesn't want to be a millionaire?), show what a million dollars looks like in terms of lifestyle: A million dollar retirement, which amounts to about $40,000 a year, won't get you a mansion on the beach, but for a retiree, it could still mean a modest home in a decent neighborhood.

Provide immediate, emotional, actionable feedback.
I've heard that keeping my idle devices and power supplies plugged in all day could be costing me, but not knowing how much that really amounts to makes it hard to feel motivated to unplug everything daily. While this visualization helps -- I'm glad I don't have a Plasma TV, or I'd be spending $160 a year to keep it plugged in! -- seeing my energy bill add up like a Taxi fare would help and seeing trees dying might be even more compelling. (As Robert Fabricant joked, vines are the future of interaction design).

Make hidden costs visible.
I've already blogged enough about hidden costs, but here's one more example. Being able to see the true cost of a credit card purchase at the point of sale -- based on your own card's APR and your payment patterns -- might change your mind about dipping into credit.

As many of you know, I work for a user experience design consulting company called Adaptive Path. Basically, we help companies design products and services that improve people's lives. I've worked on a number of finance-related projects in my career, and I'm writing a series of blog posts for my company about how thoughtful design can help people save money.

Each post will feature a set of design principles that anyone designing for consumer finance -- banking, investing, billpay, money management tools, insurance providers or any business selling "savings" as a value proposition -- can employ to make saving a little easier for us all. Here is the first:

Principle: Create perceptions that motivate.

Create attachment to savings.
A sense of ownership creates attachment and an irrational resistance to giving things up. (That's why those Tempurpedic "30 day in-home trials" are so successful.) Why not leverage this inertia to create attachment to savings? My dad has a jar of quarters he's been collecting for years. He hates tapping into it except on special occasions. While it's no different than the money in the bank, his sense of attachment to it is much stronger. Could designers foster this same sense of attachment to "virtual" money -- or perhaps to the things you're saving that money for? If you're saving for a house, perhaps as you save, you earn more and more digital pieces of your dream house. Tapping into savings takes away those pieces.

Cultivate accurate mental models.
Because most investment communications emphasize the current value of your portfolio, people tend to panic and sell low, when they're "losing" money, and buy high, when stock prices are soaring. What if instead, investment communications made shares feel more tangible -- something you want to hold on to and only sell when you can get a good price for them? After all, buying a share of stock is simply like buying an object -- say, a rare painting or trading card -- that goes up and down in value. As long as you have the painting, you don't really lose anything until you sell it. Would you rather sell your rare painting when the going price is low -- less than you paid for it -- or when it's high?

Reframe.
Instead of raising auto insurance rates for bad drivers, State Farm offers discounts to good drivers. Think about it for a moment, and you'll realize it's the same thing -- but the way it's framed affects people's motivations and perceptions. People perceive budgeting to be about restricting oneself. But what if budgeting were reframed as buying gift cards for each category -- Entertaining, Dining, Gifts, etc. -- that you can feel free to spend until they're gone?

To Be Continued...

While I tend to be a ridiculously rational person when it comes to saving money, as my previous posts probably reflect (I'll suffer through 24 hours of layovers because I know that in the long run, I'd rather have $100), reading books like Predictably Irrational has been eye-opening to me.

What makes saving money so hard for so many people? If people were truly rational --if we were the self-interested, perfectly rational "homo economicuses" that most economic theories assume we are -- saving would be easy. We'd understand that financial security will ultimately satisfy us more than a $5 mocha on a chilly day.

But humans are curious creatures -- as a growing number of books are bringing to popular attention -- and we tend to make "irrational" decisions again and again. Interestingly, despite the complexity that makes us human, behavioral economists like the authors of my favorite, Nudge, have begun to notice some trends. Humans, unlike Homo Economicus, don't always make optimal decisions, we make intuitive decisions.

These automatic decisions are not whimsical, however, but rather they reflect consistent biases towards that which is:

• Concrete (hot chocolate vs. retirement)
• Immediately Available (those darn M&Ms at work -- I don't even like M&Ms!)
• Free (in an Ariely study, while only 27% preferred 1 cent Hershey kisses to 15 cent Lindt truffles, 69% preferred FREE Hershey kisses to 14 cent Lindt truffles)
• Familiar (if Hershey is the only name you recognize in a list of investment choices, you might be tempted to pick it, just as a lot of young investors gravitate towards familiar brands like Apple)
• Perceived to be Normal (if you're sitting with friends who are all drinking espresso, you might be dissuaded from being the only one drinking whipped cream-laden hot chocolate)
• Already Ours (studies show that while people might not buy a $1000 espresso machine, if they won one in a raffle, they're quite resistant to selling it, even for the same price)

Recognizing these biases is the first step in overcoming them. By recognizing them, I've been able to overcome them or even leverage them using some of the following strategies:

• Reframe scenarios to see if I'd change my mind if I thought about it differently. I like to think of savings as making money: A $15 checked bag fee doesn't seem like much in light of a $150 flight, but if someone offered to pay me $15 to drag my stuff around in a carry on, I would probably do it! I also tend to think of bypassed opportunities as losing money: If I didn't enter videos in the Pay Yourself First challenge, I'd have given up $10 a video!
• Multiply costs over time to get a sense of the true cost. We've tossed around the idea of getting an iPhone (what's an extra $60 a month?), but when we realize that an iPhone would cost us at least $1500 more than we currently pay over 2 years, it's pretty scary! We also downgraded our internet speed when we realized the extra $20 a month we were paying for high speed multiplies to $240 a year.
• Translate dollars into concrete examples. $240 a year is the cost of an iPod Touch! Would I rather have an iPod touch, or faster internet? And as for the iPhone, sure there are times it would be convenient -- when we're out and don't know where to eat, for example. But with $1500, we could afford plenty of dining risks!
• Make it difficult to make impulse buys. Since we only keep enough to cover our basic expenses in our checking account, we have to transfer money from savings if we want to make a big purchase. If you struggle with impulse buys, keeping a limited amount in savings and keeping the credit cards at home can give you extra time to think before you spend.
• Surround myself with people who have similar financial values. It can be hard to go shopping with people (my sister! ahem! ;-) who constantly tell me "You look SO good, you HAVE to buy that!" because I hate disappointing them all the time by saying "No." (On the other hand, since I tend to be irrationally penny-pinching at times, sometimes it's good for me to hang out with someone who encourages me to spend money once in a while.)

Applying some of these strategies can help you think more rationally about financial decisions. Are there any others you like to employ?

By Alexa's Husband, Seth

I just want to take an opportunity to tip my hat to the other PYF contestants for their participation in the contest so far. There have been some great blog posts written about everyone's pursuit to find creative ways to save money. The wisdom and tips shared in these blogs over the past several months could go a long way in helping people get on top of their finances.

But as I look back at all of the blog posts, I realize something that we haven't been mentioning enough: The heart and soul behind saving money -- which I believe is contentment. I feel that if a person is generally content, there can be no shortage of creative ways that they will find to save money.

Contentment is what keeps Alexa and I happily below the curve of aspirational consumption of our society, which translates into saving money. We're content with our car, our small apartment, a low-key Valentine's Day, and though we currently eat what I'd consider a privileged diet, I know we would be content to eat simpler.

When we aren't content, it leads to a sense of insecurity and emptiness. This can lead to spending money to try to satisfy that insecurity, kind of like when you eat a lot of ice cream because you're lonely.

(Marketers like to capitalize on this realization and create discontent when it wasn't even there before. They say things like, "Don't you hate how your spring mattress causes thousands of pressure points?" and suddenly you start to notice those springs and think gee, maybe I do need a $3000 mattress.)

Searching for ways to be content with what we have is, in many ways, the first and foundational step in saving money.

right on

contentment and entitlement

By Alexa's husband, Seth

Well, I have to admit... I didn't do much planning this Valentine's Day. But, thankfully, all was not lost: We enjoyed a meaningful weekend, and not only did we not break the bank, we actually made money. Here's how it transpired...

• Friday, we were asked to be part of a panel discussion on relationships for our church's college group's coffee house night. Along with a few other couples, we shared our love story and lessons we've learned along the way. To prepare, we combed through Alexa's journals and our blogs documenting the seminal experiences as they were happening. There couldn't have been a more meaningful Valentines Day activity than remembering the details of our story and seeing how far we've come since then.
• Friday, we also took home a bunch of (perfectly fine) leftover ice cream from the church Christmas party that they were about to throw out. Do we still have the starving student mentality? Maybe, but we also hate wasting perfectly good food, love holiday ice cream flavors, and just aren't generally snobby when it comes to eating "old" food. We like to take home leftovers from catered lunches at work, while others tend to be skeptical of food that's 2-3 days old. But we have never gotten sick from holding on to food a little longer than average. After all, a lot of foods, like buttermilk and sour cream, last for weeks longer than the expiration.
• Saturday morning, Alexa gave me a haircut. It's been about four years since Alexa started cutting my hair, and she's gotten really good at it! Although it took a little trust and patience when she was first learning, and it can be a little bit of a hassle (little hairs everywhere to clean up), it's added up to a lot of savings. And as Alexa always reminds us -- a dollar saved is worth two dollars earned! So that's the first way we made money on Valentines Day.
• Saturday, we gave each other thoughtful, but low-cost gifts. I wrote Alexa a cheesy little song, and Alexa gave me some of my favorite candy in the whole world: Japanese Kit-Kats, which come in exclusive flavors you can't find anywhere else -- currently Muscat (Green Grape) and McFlurry (Espresso). (They can't be found in the U.S. due to licensing conflicts, but apparently they can import them in Canada, which Alexa discovered last weekend when she was there for a conference.) Through these little gifts, we spoke to each other's hearts, and that was plenty to make us happy.
• Saturday night, since we didn't have any plans (sorry, Alexa), we were available to help some friends who needed last-minute child sitting. It was actually a cozy way to spend the evening: We played play-dough with the kids, had pizza for dinner, and got to watch some high-definition television after the kids were in bed. We gave our friends a chance to go out for their first Valentine's Day in years, enjoyed some good bonding time, and even earned a little money on the side to save, or put towards a future date night.

Being so low-key about Valentine's Day isn't for everyone, and one of these years I want to blow Alexa away. But by taking time to share thoughts and to recall memories of our love story, giving little, but personal gifts, and helping out some friends together, we were blessed with a meaningful holiday after all!

50% off candy