SAVING

What is Savings and Why Don’t More Households Save?

Here is the problem with all of these pieces of advice: they treat savings as if it were a number to compute or an account to open. It is not.

Savings is one thing and one thing only: Savings is a Commitment.

You prioritize what you commit to in life. Most people commit to anything they see as immediately beneficial to them or to those they love. Even though you do not think about it, you are committed to breathing. You do not count your breaths per minute. You do not measure the volume of oxygen you inhale. You are committed to breathing and you just do it. Whatever it takes.

Saving is the same way. If you are committed to saving, you will just do it. You will care less about how much you save with each paycheck. You will worry less about how much you have in your accounts. You will, instead, automatically save something every time you receive income.

Saving Money vs Investing

There is a huge difference between saving and investing. Both saving money and investing money have a place in your life, but they play very different roles. We will discuss investing in detail in the next session..

How you handle these two things can have big implications for your financial success, stress level, and how wealthy you ultimately become. It can even mean the difference between suffering through a recession or depression and sleeping soundly through the night knowing that you have enough spare liquidity on hand. Saving money is the process of parking cash in extremely safe accounts or securities that can be accessed or sold in a very short amount of time.

Identify Saving Goals

To begin your commitment to savings, you must make the process as meaningful as breathing. You know that if you don’t breathe, you start to hurt and even black out. You will also likely end up with a major headache when you wake up.

Emergencies (25%): For periods of unemployment or in times of financial crisis cause by unplanned spending on medical or health necessities

Vehicles (25%): For extensive vehicle repairs as well as for purchasing your next vehicle

Household (20%): For repairing or replacing appliances and furniture, as well as for planned home and yard improvements

Gifts (10%): For gifts for birthdays, weddings, Christmas or other holidays

Travel (15%): For vacations and out-of-town trips

Slush (5%): For unexpected but advantageous spending opportunities, such as finding the “deal of a lifetime” on an item or experience you had not planned on purchasing but decide you want after all.

Use Separate Financial Institutions

You can understand the power of separating your checking from your savings accounts. To take this further, though, you need to make it as inconvenient as possible, without making it impossible, to access your savings. Here are some things to look for in a bank or credit union that would be an ideal place to park your savings and let them grow unmolested.

Find a financial institution that:

• does not issue you an ATM or debit card.

• has no drive through lane.

• has no fees and no minimum balance requirements for savings accounts.

• is nowhere near your home or place of work. Having only one branch is great. Being an online only financial institution is also highly recommended.

• keeps limited banking hours (no evening or weekend hours).

• offers remote deposit of checks.

• you connect to your paycheck through direct deposit.

• you do not connect electronically to your checking account bank or credit union.

QUESTION 1

What does “saving” mean?

QUESTION 2

Is spending less money the same as saving money?

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Separate Account For Each Goal

Another challenge many would-be savers face is figuring out how much of their savings is for which purpose, since they put it all in one account. Think about it. If you have been saving for emergencies, a vacation and other occasions gifts over the past five months, and summer rolls around, your natural question will be, “how much of this $1,500 is for our summer vacation and how much is for the other goals?”

To get past this temptation, the simple answer is to open multiple savings accounts. In fact, open a new savings account for each of your major savings goals. That would include a savings account for your emergency funds, one for your travel and vacations, one for car repairs and replacement, one for appliances and furniture repair and replacement, one for gift giving, and one for all other unexpected but important purchases.

The reality is that with a separate account for each savings category, you will likely have just one or two deposits a month into each account. That can actually simplify the process of tracking your money and determining whether you have made your monthly deposits yet or not.

Save From Every Income Source

One of the oddities of human nature is that it is easier to commit to do something 100% of the time than it is to do it 99% of the time. If you have committed to save something each and every time you receive income, it becomes automatic and you do not need to argue with yourself about whether you can afford it. However, if you commit to save 99% of the time, you will also dither and dicker with yourself, wondering if this is the 1% of the times you should not save.

Your mental and emotional exhaustion will eventually overcome your willpower to save anything at all.

Consequently, consider saving a portion of every bit of income you receive, from wages and salaries to gifts to tax refunds to that $200 you forgot your brother-in-law owed you from three years ago until he just paid you this morning.

Save something from every dollar every time. After all, you do not think about how much oxygen you want to get from each breath. You just breathe one breath after another.

Automate Transfers And Deposits

As you approach your final steps, you should recognize that what you are building is not just a habit but a system for saving money automatically. This step fills a central requirement of the system. You must automate your savings deposits to happen every month into each of the savings accounts.

First, you can have money directly deposited from your paycheck into your savings accounts.

Second, you can set up automatic transfers into your savings accounts. Do not fear that just because your savings accounts are held at a bank or credit union separate from your checking account that you cannot set up automatic transfers. Instead of transfers between accounts, you can set up transfers using your bank’s or credit union’s online bill pay option.

Timing is critical for either method. Set up the transfers or bill payments to happen just two or three days after your payday. This allows for variations of deposit dates when your payday falls on a weekend or a holiday. Do not delay too long after your payday, though. The longer your money sits in your checking account, the more likely you are to spend it impulsively.