One of the largest issues I see during our one-on-one financial coaching meetings is the inability to save money.
Here are some facts about saved money:
- Saving money is essential to long-term sustainability
- Saved money relieves stress
- Saved money allows you to take a chance
- Saved money allows life to happen (job loss, disability, pay cut, injury, etc.) without going broke!
But you already knew that part. We all know that we are supposed to “save money for a rainy day.” Yet, even though we KNOW how important it is to save money, most people fail to do so.
My hope with this blog post is to challenge YOU to take a next step. If you have negative savings (no money plus overdrafted accounts and debt), the goal is to bring you to zero. If you are at zero savings, the goal is to get to at least $2,500 in a beginner emergency fund. If you have been able to save a substantial amount of money, it is my hope that you will participate in the discussion and share your own tips that have worked well for you.
Automatic Draft From Paycheck
Establish a savings account and have the money drafted from every single paycheck. Whether it is $25 or $250 per pay period – just SAVE! You KNOW that the car is going to break down. You KNOW that the school is going to send home a surprise expense.
By establishing this draft, it allows the money to be “out-of-sight.” When money is out-of-sight, it can be out-of-mind. This allows the account to grow without you robbing it!
Now, I personally had a problem with this when I did not have a monthly budget. I would ROB my own savings account about 2.1 microseconds after I was paid. Only after I had a plan developed together with my bride, Jenn, did my savings account begin growing in a healthy manner.
Create An Escrow Account For Known, Upcoming Expenses
For those unfamiliar with an escrow account, it is a savings account that is established by a mortgage company. The mortgage company totals the annual cost of property taxes and homeowner’s insurance and divides it by the number of payments being made each year. The mortgage company then pays for the taxes and insurance from this escrow (savings) account. For example, if the property taxes are $1,200/year and the insurance is $600, then the total amount needed each year is $1,800. The mortgage company will collect $150 extra with each monthly payment to place into the escrow account.
An escrow account smooths out the cost over a year – instead of having to pay for it all in one month. It tightens the monthly budget, but having a fully funded escrow account sure is AWESOME when vacation arrives and the money has already been saved to pay cash for it! Those who have a mortgage with an escrow account will testify to the fact that they never worry about paying for the taxes and insurance – ask someone!
Take a moment to read THIS POST about how to calculate the amount you need to save each month for your known, upcoming expenses.
Take it from one who has lived it – if you do not plan for your known, upcoming expenses, your ability to save money will be tremendously hampered!
How about you? What are some ways you have made saving money easier in your own finances?
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NOTE: I hold my Known Upcoming Non-Monthly Savings in an account at ING Direct. It allows me to save money “out of sight – out of mind” and allows me to create “sub-accounts” for each item I am saving for. For example, I have created a “Christmas” and “Car Replacement Fund” in my account. You can check out ING Direct HERE.