In working on becoming financially responsible, the 4 cornerstones need to be addressed. In week three of the series, we will be working on cutting costs. Once you know where your money is going, you need to work on trimming excess spending.
After going through the process of setting goals, tracking your budget, cutting costs and creating a budget, it is now time to create a vehicle for your savings to reach those goals. Many people think that having extra money in your checking account counts as savings.
It doesn’t. The biggest problem with your checking account is that it gives you immediate access to your funds. Same for savings accounts at your main bank. If I want to buy something or just need a bit more cash in my checking account, it is so easy to just make a same day, instantaneous transfer from my savings account to my checking account. The ease is great in an emergency, but it is horrible for willpower.
If you are doing everything right, keeping a tight hold of your finances, you will not need to make instantaneous transfers, you will be able to plan ahead and transfer in anticipation of your spending and expenses. So the first thing to do is to decide where you are going to save your money.
My favorite banks for savings are online banks. My favorite is Capital One 360. They offer slightly better interest rates than bricks-and-mortar banks, and make me think before transferring money. The other great thing is that I can have pretty much unlimited accounts, so my kids have their own savings accounts, I have a business savings account, and then several different accounts for different savings goals and needs. I can set up automatic savings transfers, set savings goals, and it takes a few days to transfer my money to my checking account – forcing me to really think about transferring money out of my savings accounts.
I encourage you to spend a little time figuring out what type of online savings account you want to use then figure out your savings plan.
We have a few different savings plans in our house. We have a set amount transferred out of my husband’s paycheck every month. This reduces his “net” pay, and I created my budget based on how much money he brings home (less the savings he takes out of his check). He also has a small amount coming out of his paycheck for our kids’ savings. We put $50 a month into a separate savings account for each child. They are young, 3 and 1, so we have time to save for them, but we knew that we need to start saving now so that it isn’t as hard to save later on.
We also have another savings plan. We have set up automatic transfers from our checking account in accordance with the 52 – Week Savings plan. In 2014, we set up the account to save $1378 each using this method – for a total of $2756 for the year. We are almost done with the year and haven’t reversed any savings and haven’t touched the money. Since we have other savings, we decided that we didn’t need the money for anything specifically, so we are just going to leave the money and set up a new challenge for next year.
This year, our savings challenge is to save $104 per week, which is the biggest savings transfer that we had this year for the savings challenge. This will give us $5408 for 2015. If we save all the money in our savings challenge account, that will mean that we saved an extra $8164 over two years – in addition to our other savings plans. That is a very nice vacation, don’t you think?
Our fourth savings plan is to put any money that we save on our monthly budget into savings. Even if it is a few hundred dollars, we put that into our bricks and mortar bank first until we have enough for a month’s worth of expenses. Once we hit that goal, the rest of the money will start going to our main savings account at our online bank.
We are working to put a lot of money into savings, and have really ramped up in the last few months once I took control of our budget and have begun religiously tracking it. It takes a lot of time, but the money we saved in the last month is probably a 1/3 more than we have been saving per month. We have also gotten a better handle on our expenses in such a way that we are less sensitive to the changes in my husband’s paycheck. Because part of his income is overtime, his paychecks can vary. We have made it so that we can live off his “smallest” paycheck – one without any overtime with the standard savings transfer still going to our online savings.
This week, I challenge you to really think about how much you can be saving and set up an account (or a few) to make sure you are meeting your savings goals. Even a small amount every month can grow to help you reach your goals. I would love to hear your savings techniques!
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