Saving

During this series, I’m sharing PROVEN and PRACTICAL techniques that have helped people save money.

PART ONE – Automatic Draft From Paycheck

PART TWO – Create an Escrow Account For Known, Upcoming Expenses

PART THREE – Establish Accountability

Find someone who is (1) winning with money, (2) not trying to sell you something, and (3) available to help you. Ask them to hold you accountable to your saving goal.  I have seen some people go to the extreme length of actually giving the money to the other individual to hold for them because they cannot trust themselves to keep their own hands off of it.

Accountability can also be created by your written spending plan that you prepare every month before the month begins (you do prepare one, right?).  This plan helps cement your goals in your mind and helps you connect the fact that if you spend money on unplanned items, you will literally be robbing yourself of your savings goals.

I am married – this means I have built-in accountability.  Jenn is a huge saver.  She keeps me (the spender) in control. Establish accountability – it works!

During this series, I’m sharing PROVEN and PRACTICAL techniques that have helped people save money.

PART ONE – Automatic Draft From Paycheck

PART TWO – Create an Escrow Account For Known, Upcoming Expenses

For those unfamiliar with an escrow account, it is a savings account that is generally 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 (sorry Northern folks – this is how low they are in the South) 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 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!

Related Tool – Known, Upcoming Expenses Calculator

One of the largest issues I see during one-on-one financial coaching is the inability to save money. Saved money is essential to long-term sustainability.  Saved money relieves stress and allows you to take a chance.  Saved money allows life to happen (job loss, disability, pay cut, injury, etc.).

But you already knew that part.  Yet, even though we KNOW how important it is to save money, most people fail to do so.  So, I wanted this series to focus PROVEN and PRACTICAL techniques that have helped people save money.

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, the goal is to get to at least $2,500.  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!

PART ONE  Automatic Draft From Paycheck

Establish a savings account and have the money drafted from every single paycheck.  Whether it’s $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 being robbed.

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.  My account did not start growing in a healthy manner until after Jenn and I developed a plan that we agreed on.

How about you?  Is your paycheck set up for an automatic draft into your savings account?

Everyone must save for three things: (1) Emergencies, (2) Known Upcoming Non-Monthly Expenses, and (3) Dreams

Of these three, it seems like saving for #2 – Known Upcoming Non-Monthly Expenses is the most difficult and creates the most issues with budgeting.

Here’s why Known Upcoming Non-Monthly Expenses create severe budgeting difficulty:

1. They are non-monthly  Because of this, we tend to forget about them until they show up
2. They are usually larger expenses  Property taxes, insurance premiums, Christmas, vacation, car maintenance and repairs, and insurance deductibles usually have larger price tags than typical monthly expenses
3. We don’t save for the expenses monthly  We wait until the bill arrives and then we are forced to scramble in an attempt to pay for it

This is why I call these type of expenses “Budget Crushing Expenses.” You can avoid this stress entirely by creating a Known Upcoming Expenses saving plan!

Here’s a step-by-step way for you to eliminate “Budget Crushing Expenses” from your life:

1. Download our free “Known Upcoming Expenses Calculator” tool HERE.
2. Enter all your “Known Upcoming Expenses” into the tool – include the annual expense of each line item.
3. Enter your “# of Pay Periods Per Year” into the tool – enter “12” if paid monthly, “26” if paid every 2 weeks, “52” if paid weekly, and “24” if paid twice each month.
4. You have now calculated the amount you need to save out of each paycheck to ensure all of your Known Upcoming Non-Monthly Expenses are covered.
5. BONUS STEP: Set up an on-line savings account (I use Capital One 360 – formerly known as ING Direct) and make your savings automatic. In other words, you can set up automated transfers to your on-line savings account. This allows you to “set it and forget it” and KNOW you’re major known upcoming non-monthly expenses are covered!

AUTHOR’S NOTE: I am paid monthly. I have set up a monthly transfer to happen on the 6th day of the month from my regular bill-paying bank account to my Capital One 360 account. It may not be the most exciting thing in life, but it is INCREDIBLE to know I have eliminated “budget crushing expenses” from my life!

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Disclosure

Summer is an incredible time to gear down, rest, and renew relationships.

It is also a time that could break the bank if one is not very careful. To help you have an incredible summer without destroying the budget, we put together a list of fun ideas for you:

10 Summer Fun Ideas That Won’t Break The Bank

1. Go camping in a tent  Or as one of my friends calls it: “Pretend to be homeless” 🙂 I love tent camping!
2. Take a vacation with family or friends and SHARE the cabin/house/condo/etc.  My bride and I have done this many times. It cuts lodging costs by half (or more) and allows us to hang out with our friends/family even more!
3. Take up a hobby that doesn’t cost a lot. My friends play basketball once a week. I run with my daughter. Tennis costs next to nothing. Corn hole. Put on an art contest and invite your children and their friends to participate. Hike trails at a state park. Go swimming at a local park.
4. Start a small business with your children. Ask them for their ideas. Choose one while teaching them the concept of value (what customers are willing to pay money for) and marketing/sales (no one will buy if they don’t know it exists). Sell the product/service on-line using a basic website (can set up through a basic free blogging service) and PayPal.
5. Attend a play at a local community theater. If you volunteer to serve at several of their events, you can probably attend a show for FREE!
6. Volunteer at a local food pantry or homeless shelter. This really costs nothing, and it allows you to serve those who are struggling!
7. Go to yard sales, buy cool stuff, and sell on-line.  My children love discovering “treasures” on Fridays and Saturdays.
8. Go fishing at a local pond or lake.  When I see my little son experience the thrill of catching a fish, touching it, and then tossing it back in the water – it is AWESOME! My daughter loves fishing too. And my bride catches some sun.
9. Produce a home movie using a script written by your children. iPhones have HD video capability. Many iPads and nearly every MAC has iMovie which allows you to edit and produce the show. This really fosters creativity!
10. Launch five helium balloons with your name and address and a note.  Ask the discoverer of the grounded balloon to write you back and tell you about where and how they found the balloon! You never know when you will hear back and from how far!

Any ideas you would add to the list?