Paycheck Chronicles

Why I Don't Like Those "Save The Change" Programs

Technology can do all sorts of cool things, and there are many programs and apps that will help you with your finances.  On popular trend is to have a program that moves a small amount of money to savings, usually based upon some action.  For example, Bank of America's Keep The Change savings program rounds up each debit card purchase to the nearest dollar, and moves the extra money to a savings account.  It's a 21st century version of the old-school "collect all your change in a big jar" savings method.  Smart phone based tools like Digit and Acorn do something similar.  Any of these programs might be good for you, but I'm not a big fan.  Here's why:  You're still spending exactly the same amount of money.  It's a smoke-and-mirrors trick, but it doesn't change the basic math.

Let's say you have a $15 budget for random spending each day.  If you buy a $2.13 coffee at the convenience store, and spend $6.25 on a sandwich at lunch, and then get a $1.79 sofa in the afternoon, you've spent $10.17 that day, regardless of how you account for it.

I actively like to spend change, because it means I keep more dollars, so I would get $.87 back with my coffee purchase, leaving me with $12 in dollars and $.87 in change.  I'd then use that quarter for my lunch purchase, leaving me with 6 whole dollars and $.62 in change.  I'd have to spend two full dollars on the soda, so I would end up with 4 dollars and $.83 in change at the end of the day.

If you used a Keep The Change type program, you'd round up that $.87 in the morning, and round up $.75 at lunch, and round up $.21 in the afternoon.  You'd still have three dollars in your spending budget, and you would have moved $1.83 to your savings account.  But it doesn't change the math, you still have the same $4.87 at the end of the day.  You've just moved some of this to a different account.

If you have extra cash in your monthly budget, and you're bad at saving, this might be an amazing thing for you.  But if you are scrounging under the sofa cushions at the end of the month, this isn't going to accomplish anything because you'll need to use that "savings" money to spend on essentials.  And if you're already a good saver, then what's the point of making it complicated?

Personal finance is, well, personal because no one thing works for every person.  If these type of change savings programs work for you, great.  But don't think that they're somehow creating money where it doesn't exist, and definitely don't pay for the privilege of using them.

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