We’ve been making such exciting progress through our journey in Financial Land, and it’s not time to stop now! No, today, we’re going to tackle one of the most difficult aspects of personal finance, and you know what that is. Not picking out a killer new wallet. Saving.
And as usual, DailyWorth (which I still maintain you need to check out) has some solid advice for saving, and it comes in three steps.
#1: Make 90% of your savings passive. Everything from your 401K to your emergency fund should be an automatic process. Praise the Technology Gods! Every financial institution in the world wants to make this easy for you. Your employer, if they pay into a 401K for you, will directly deposit this stuff at the same time as your paycheck. Your bank account can probably automatically deposit into a savings account if you set it up monthly. Set as much of this up as possible. As a good friend of mine (who is one of the few natural savers I know) says, “I just assume a portion of [my paycheck] isn’t even there.” Saving is, frankly, a bit unnatural to most of us: money is one of the few forms of energy it’s good to pile up toward a goal. By making it passive, you don’t have to rely on your active impetus to be faithful to those goals.
#2: Save $500 first. This is known as your emergency fund. And once you hit $500, keep going. Don’t touch this account for anything but a true emergency. What is a true emergency? Job loss, an unforeseen medical event, or a death (God forbid). That’s it. Keep building on this fund until you have enough money in there to float you for a period of unemployment – at least one month’s full living and bill payments, but preferably three (which is considered a pretty standard amount of time to spend looking for a job these days).
#3: Save your savings. You know that friend you have who’s like, “I went shopping and got this deal and saved $20 on the cost of my new whatever”? Let me tell you from experience: she didn’t save anything unless she put that $20 aside, in a savings account. Plan to pay full price for things, and set whatever savings you encounter aside.
So, that’s a great starting point, and some smart rules to live by, but what exactly are you saving for? Here are a few things you’ll want to put savings toward:
Emergency Fund: Everyone needs this. Everyone either loses a job or has a medical emergency or has to pitch in for someone else’s, and you need money to take care of these things. You’ll be amazed by the peace of mind you feel, even if your job is stable and you’re in incredible health, just socking a bit away toward this fund every paycheck.
Semi-Emergency Fund: You can probably anticipate a few of the emergencies that will come up in your life. Know you’re planning to have a kid? Start putting money in here; babies are expensive. Know that you want to continue using a computer for more than four years? Put replacement or repair funds in this account. Own a car? HELLO. They break. Save some money for repairs. These are predictable emergencies; you don’t know when they’ll happen, but you can safely estimate that they will happen. Give yourself a break and save in advance for them.
Retirement: Everyone wants this, and will probably need it. And women, you’re special: you live longer than men, so chances are you’ll be retired longer than the men in your life. If your job doesn’t contribute to a 401K for you, ask them why not. And then set one up for yourself. They’re fairly easy to set up, and you don’t have to put a ton of money into it every paycheck; just $20 over the long haul, with interest, will give you a nice chunk of change when you’re too bent over to run photocopies for 30-year-old sales assholes anymore. If your work does contribute, that doesn’t excuse you from contributing. More is good. Think of it as taking care of your grandma.
Funsies: This is my favorite savings account. Funsies are everything from the annual Christmas present budget, to that vacation you want to take, to the wardrobe changes you envision for yourself in the next year of your life, to gadgets, books, special dinners, treats, or whatever. You could also call this your Rainy Day Fund, because this is the money you have on hand to treat yourself. Finally, this is also the fund you use to save up toward specific, personal goals.
And what about those of us (many of us) who don’t have any elbow room in our paychecks? Why, darlin’, that’s when you get creative. There are savings everywhere. You can save on groceries, household items, and other regular purchases not only by coupon clipping and watching for sales, but also by targeting items you know you use regularly and using a program (like Amazon’s Subscribe and Save) to get regular savings on those items (I use it for cleaning supplies and toiletries; I know another writer here uses it for regular bulk cooking ingredients, like high-quality flour). Around your home, some small fixes can make your home more energy efficient (plug leaky windows and doors, hang curtains over single-pane windows, call the landlord and demand he fix the effing leaky faucets now, etc.). If you have regular prescriptions, ask your doctor if there are generic forms of the medications you take, to decrease your monthly output there. Even debt payments can sometimes be negotiated down to give you a little wiggle room.
But once you find these savings, don’t go splurge off the savings high. That elbow room sometimes feels so good, you don’t know what to do with yourself. So let me tell you what to do: put the money in the damn savings account! I promise it feels better than (in my case) a new pair of shoes and a funky wall hanging. I figure fun spending is just like getting a tattoo: if you still want it in a few months, when you’ve had time to save the money for it without burdening yourself or taking a significant chunk out of your lifestyle, then go for that purchase. But in the mean time – save, save, save!
What are your savings tricks and tips? What are you saving for right now?