Personal Finance Tools Review: SmartyPig
January 27, 2014Save for a rainy day. Avoid debt by saving for goals in advance. Those are some of the oldest pieces of financial advice out there but they can also be the hardest to follow.
So in this day and age of tools and apps that are available to supposedly make our lives easier, I thought it would be appropriate to do a quick review of some personal finance tools that may prove helpful getting people closer to their financial life goals. Beginning this week, I will begin a series of Monday posts reviewing some popular and not so popular online tools. This week we will start by looking at an online savings account known as SmartyPig.
A best practice financial planning behavior is to put savings first. What does this really mean? When you establish your personal spending plan, you simply want to make sure that you put savings first (after earning income) and make things as simple as possible by saving money automatically.
This is easier said than done in the real world. As I pointed out in last week’s blog post, most people put savings lower on the financial “to do” list. This simply isn’t an effective way to save. Savings needs to be intentional and this is true whether you are saving for emergencies (3-6 months’ basic living expenses is a general rule) or saving for a major purchase or for those irregular expenses that don’t occur every month of the year (see the planned spending account system).
SmartyPig is a savings account (technically a savings platform) that allows its customers to establish multiple goals. You can have separate goals and fund them with different amounts at time intervals that keep you in control. You also have the ability to track your progress and if you are into social media, you can choose to share your progress with friends and family. Your circle can even help you fund those goals.
The positives include the fact there are no fees or gimmicks, and the savings process can be simplified and monitored. What I like about this tool is the tracking process that is built into the program. It can be helpful to see that you are 25% of the way towards that Caribbean vacation or that you have 75% of your car replacement fund in place.
I also like the fact that you can easily transfer funds into your account on a regular basis or choose to deposit funds irregularly. In addition, the savings rate is one of the most competitive in the country these days with a 1.0% APY. (Yes, I realize that one percent is nothing to get too excited about but you do want to let your money work hard for you.) When you reach your goal, you can either transfer your funds back into your checking account or get an additional boost to your savings using retailer gift cards from some well known companies like Amazon and Best Buy.
Some of the things that I do not like about SmartyPig include the fact you cannot setup joint accounts. This creates some estate planning headaches since jointly held property between spouses bypasses probate. While you can give your spouse or partner access to view your account, each savings account at Smarty Pig is currently setup as an individual account.
Other negatives include the length of time it takes to get access to your funds. In some case, it can take days for your account funds to get transferred. The whole purpose of an emergency savings account is liquidity in the event of unforeseen life events. For that reason, you should stick with a savings, money market or interest checking account that will give you immediate access to your funds.
In contrast though, if you need some distance and time between your savings and an urge to splurge, this delayed gratification can be a good thing. It also takes some discipline to make sure you are using your savings for the intended purpose and you still have to monitor spending. When you get a boost to your savings to spend money with a particular retailer, it may still be tempting to overspend, defeating the entire purpose of the savings account.
In summary, I love the concept of segmenting your savings goals and tracking your progress on a regular basis. I also suggest taking those irregular expenses that don’t occur every month and include them in your personal spending plan. My wife and I have separate savings accounts for a family vacation fund, Christmas presents, and a car replacement fund. This year we even added a clothing goal to keep our spending in line with our game plan. If you are looking for new ways to save focus on the basics:
1. Set SMART financial life goals (Specific, Measurable, Achievable, Realistic, Timely)
2. Create and follow a personal spending plan where savings come first.
3. Automate things with direct deposit and automatic transfers.
4. Track your progress (Check out this Saving for Goals calculator)
5. Know the difference between emergencies and discretionary spending.
After you have these basics in place, you can create your own system to ramp up your savings with purpose. If you use a platform like SmartyPig, you just may find that extra boost of motivation and commitment. If you have tried using this savings tool or a similar method, we look forward to your thoughts.