Tuesday, September 6, 2011

Saving & Budgeting--Two Entirely Different Things

I had a bit of an epiphany as I was setting out new goals for myself (because, as I said before, September always feels like the beginning of a new year to me). For the first time, I realized that I cannot 'budget' my savings. To do so is to virtually guarantee that I will fail to save anything.

Usually, I try to 'give every dollar a name' as Dave Ramsey famously tells us
when following his budget instructions. I set out all my expenses and whatever is left over is labeled 'Savings.' The trouble is, somewhere between paying the bills, putting money into the envelopes and seeing what remains, those remains, the 'savings' portion, gets smaller and smaller.

But I do know there's a better way.

Two years ago, as a way to get a 'free' savings account from Bank of America (by which I mean, an account that does not need to have any particular minimum balance in it to avoid an annoying $3 per month charge), I agreed to have $50 a month transferred from my checking account into the savings account.

There was no penalty for immediately transferring the money back to checking, so I figured this was a no-brainer method to get a fee-free savings account. But a funny thing happened on my way to transferring the money back--I often forgot to do it. $50 was a small enough amount that I didn't really miss it in my budget, yet it was a large enough amount to give me $600 a year for my Christmas account.

So Grace's particular epiphany? The way to save money is to take it off the top and get it out of my checking account. If it stays in my checking account it WILL get spent, and that's irrespective of all my good intentions NOT to spend it. The surprise is that once I do get the money out of my checking account, a certain inertia sets in, and even though I could easily move the money back, I tend not to.

So my first September resolution is to up that transfer to $75. It may be a mind game but for me, it's one that works.


Anonymous said...

That is a really great idea. I think I will set 50.00 of one of our checks to go right into our savings. My hours are being cut but my husband is getting a few hours of OT so it should balance out.

600.00 would be a nice amount for summer vacation or something.


Sharon said...

Mind games work for me...:)!

I've found it's harder to save money than pay off debt...isn't that strange??

Good luck with your savings!

Suzi In BG said...

The financial wizards all say to Pay Yourself First. That is what you are doing with your $50.

Anonymous said...

Great article. I have always had my paycheck directly deposited into my savings account. Every month I deposit enough into my checking account and take out my spending money in cash. The end result is that there is no extra in the checking account. Extra is in the savings account. Not inaccessible, but it put a little more thought behind 'extra' purchases.


Anonymous said...

Hi Grace,

About the only advice that I give to young people is to 'pay yourself first'. I tell them to start with $20 a paycheck and increase every six months and do not touch it. The only reason that I'm doing okay today is because of paying myself. I got laid off in 2006 and had a tidy sum.


Anonymous said...

That's a big part of the David Bach method ("Smart people finish rich"). Also what we do with the majority of our savings.

Anonymous said...

I am the same way - money goes straight into my savings every month on payday, and I dole out money into checking every week for that week. It's definitely a mental thing, and it works for me to.

NCN said...

Grace, I do BOTH. I "pay myself first" - just for general savings. Then, at the end of the month, I allocate any thing "left over" to specific savings categories. (September feels like the "first" of the year to me, too... a school thing, I guess...)
Rock on,

LC said...

Your post had me trying to remember how hubby and I developed the habit of taking savings off the top. I think we both brought that habit with us from parental training. Tithe off the top and savings next.

Like your experience, we didn't miss it when that money was already out of the checking account.