The Real "TRICK" To Saving Money
I'm In Debt
- Posted:
7/8/2008
My husband and I are constantly making plans to save money. Not only is it important to have money saved for emergencies and unexpected situations - but we also have plans to do "stuff" and as everyone knows, doing stuff takes money most of the time. The trouble with our plans to save money is that our expenses keep getting in the way.
We'll set up a really nice budget on paper, and it all works out. We can put X amount of dollars into a savings account for emergencies, and X amount into the vacation savings, and still have money to pay our bills and have some small weekly entertainment. Then, within a week or two of starting the budget, we discover Vehicle 1 needs a new alternator, Vehicle 2 requires a new set of brakes, Son 1 has new prescriptions, and Son 2 needs cleats for soccer. So there isn't enough "extra" money to cover for these unplanned expenses, and the budget has to be tossed out.
Sound familiar? I'm hoping we aren't the only family this happens to. I'm actually quite good with our money for the most part, and find it easy to stay disciplined (we're not running out to buy new stuff every other day, our budget is only ever thrown off by these seemingly unexpected or unplanned events).
So what's the trick to saving money? How does the average middle-to-upper-middle-class family pay for their living expenses, handle unexpected and unplanned for events and expenses, and still find money to save?
My uncle is a money guy. From the time he was in his early 20's, he was really good about saving money. He did everything the traditional way (get a job with 401K type retirement plan, contribute the maximum allowed amount from his paycheck every week, etc). When he'd get raises in pay, which he did every year because he was a government employee before he retired a few years ago, he would take those pay raises and add them to a savings contribution. When his 401K was totally maxed out, all pay raises then went into other investments (mutual funds, stocks, savings accounts, etc). He always lived off the same amount of money, rarely paid for anything with loans or credit (and when he did paid them off well ahead of schedule). Anyway, we talked a few times about it, and he told me the real trick to saving was to
pay myself first. How many times have you heard or read this line in conjunction with personal finance? Sickening, I know.
I always laughed and said the kids needed diapers, formula and food before I could pay myself anything. I'd laugh and say that if I paid myself before the bills I'd never have enough to pay the bills and soon I'd be homeless. Thing is, I wish I hadn't laughed so much and that I had taken his advice sooner.
It's not about having a LOT of money to save, because let's face it- most of us don't. But because we don't have a lot to save means we spend the little bit extra we have and we don't think much about that $25 for take out pizza. But if we saved $25 a week, that's $100 a month, $1200 a year. Even if it's saved in a low-interest account for a few years, it will soon add up to enough to invest in a better, higher interest option. Thing is, if I saved $25 a week from the time I was say, 20, I'd currently have $10,400 in a savings account, earning whatever interest it earns... I'm not going to attempt the math on that. But the point is, I'd have $10,400 just from $25 a week. I bet even if I saved $25 a week, I could still come up with some money for pizza or entertainment, too.
So the trick to saving money, as Nike would say, is to just do it. Set it up to happen automatically (transfer from your checking account to a savings account before you have a chance to spend it or sent it out to a bill and then say you don't have enough to save.) Send it to an account without an ATM card, and don't allow yourself to pull from there no matter what. If your car breaks down, do what you would normally do to fix it. Don't pull from this savings. You'll have to keep trying to establish an emergency fund to handle the unexpected expenses. You want some money saved that you can then invest and let compound interest, or a sound investment strategy earn you MORE money. If you save $200 and then take it out to buy tires for your car, you defeat the purpose. Pretend you don't have this money once you save it, until you have reached a set dollar amount- enough to move it to a different savings or investment vehicle. Let your money work for you.
That's the trick, as I understand it.
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