The recession has encouraged many Americans to take a more disciplined approach to savings and debt reduction. Personal savings as a percentage of disposable personal income (DPI), which dipped into negative territory in 2005, has run close to 5% in recent months. Total U.S. household debt as a percentage of DPI has also declined in the past two years.

Still, many investors are sabotaging their efforts without realizing it.

Nearly 28% of 401(k) plan participants had a loan outstanding on their 401(k) at the end of 2010, the highest level in the ten years that consulting firm Aon Hewitt has tracked such loans. And more than 29% of plan participants aren't contributing enough to meet their company match threshold.

"People spend and save what's left instead of saving and spending what's left," says financial advisor Steven Kaye, president of the American Economic Planning Group (AEPG) Inc., a wealth management firm in Warren, N.J.

Kaye strongly encourages clients to embrace the automatic savings of traditional 401(k) and tax-free Roth 401(k) plans-and to leave that money alone. "Plans to pay it back rarely work out because people aren't disciplined enough," he says. He'd also like to see more employers offer automatic 401(k) increases.

"The 401(k) is the first line of defense," advisor Patti Brennan, president of wealth management firm Key Financial Inc. in West Chester, Pa., tells clients. She really likes the Roth 401(k), especially for clients under age 55. "Yank the money right out [of your paycheck] so you can't see it or spend it," says Brennan.

Automatic deductions, no matter what they're used for, also enable investors to take advantage of dollar cost averaging-a concept she's a big believer in. Brennan and her husband used automatic deductions on their checking account to get an early start building college accounts for each of their four children. A 529 college savings plan is "almost a no-brainer because of tax benefits," she says.

She cautions against borrowing from a 401(k) account to pay off credit cards or other debt, largely because a 401(k) is a protected asset. Instead, she encourages buckling down and paying off debt through cash flow.

Brennan began working with a new client in his late 50s who was considering tapping into his $450,000 401(k) account to pay off $30,000 in credit card debt. Instead, she set up a disciplined program which cut his 401(k) contribution from 10% to 6% so he still received his employer match but had more money to pay off the debt. The 401(k) continued to grow and the client was debt-free in about 18 months.

Brennan and Kaye, both of whom are CFP licensees, place a lot of emphasis on helping clients understand their expenses.
At the top of Kaye's list is getting clients to distinguish between their wants and their needs. "People don't have a clue about their real expenses," he says. Even if they have a sense of the monthly and annual figures, they forget to factor in periodic big-ticket items like a new roof or new car.