Friday, June 18, 2010

My Two Cents On Budgeting: Savings

So we already know the benefits of having a savings account. We know that we should set funds aside for the proverbial rainy day. Have money in case of an emergency. Or to have the money in hand for an upcoming purchase that you know is coming. Like a new car. A new roof. Christmas.

Although we know why we should save, too often we put off being really diligent with it. Or at least, we do! We'll do really well for a while and then slack off.

The first step is to go to your bank and set up a savings account.

The second step is to put something in it. The obvious something here would be money.

The third step is to set goals for savings. This will keep you going for the long haul.

I can't tell you how much you should save each month. That's a detail only you know.

To be quite honest, our savings amounts each month fluctuate. We put more in one month and the next month only a little. Life happens and sometimes money is in short supply.

The main objective here is to purpose in your heart and set a goal to save something each month. Maybe it's a hard time for you financially and you have to sacrifice to save even $10. Don't scoff at small amounts. Save whatever you can! It all adds up over time.

Dave Ramsey recommends that you should save an emergency fund of $1000 before beginning to pay off any debt. Selling things, working an extra job or becoming extremely frugal are ways to make this happen more quickly. When you have some money in your account, unexpected emergencies won't seem quite so drastic. When you have the money saved, you won't need to put yet another bill on the credit card to add to your debt.

Except for a few periods of time, we've always made it a practice to put my income into savings and live on my husband's income. We made this decision before we were married and have been so glad. While we've never had a bulging savings account, saving the second income when we've had it has been beneficial in growing our savings.

This has not always been easy since it requires discipline to save rather than spend and to live below your means in order to have a little extra later.

Once the money in your savings account starts to grow, it's tempting to look at the amount and splurge on a  nice vacation.

While there's nothing wrong with a splurge if you can afford it, it's wise to have a plan for your savings account just as you do for your written monthly budget.

We've divided our savings account into categories. Instead of seeing one lump sum, it's broken down into different categories. This way we can see at a glance how much we have in our emergency fund, our Christmas fund, our vacation fund and so on.

I thrive on keeping things really simple so I do this on a an index card that I keep inside our savings passbook.

I call it our "Savings Breakdown"  and list the categories and amounts we have in each.

Emergency
House
Car replacement
Car repairs
Dog (includes yearly exams, vaccinations, boarding)
Christmas (gifts for family and each other, tree, seasonal giving. Decide on an approximate amount and then divide by 12 to determine how much to save each month. )
Vacation  (our trips are usually to visit family ; this fund helps with extra gas and food money for these trips and for the occasional hotel room if we are away.)
Medical
Clothing
Business expenses
Yearly expenses ( car taxes, tax prep are among the once a year expenses we have. We add these up and then divide by 12 to come up with a monthly amount to save. No more yearly surprises!)
Extra funds (We don't have a better name for this category. But sometimes expenses come up that don't come out of the other categories so we have a bit extra to cover those should we need it.)

In times of plenty, we would add to each category every month. In leaner times, we rotate between categories and add to them in order of importance. Things like vacation, Christmas and clothing aren't as crucial as say, car repairs.

When we add to or subtract from savings, I keep track by noting it on my index card beside the proper category. I also keep track of all savings account transactions in the passbook.

This takes a few minutes and is something to keep up with but it is not hard and works well for us. Some folks may prefer online accounting software or even separate savings accounts if saving for a large purchase but so far this simple method is good for us.

A large part of saving for the future is anticipating needs. Not living in fear of what catastrophe is going to hit us next but saving for those things that most certainly will be coming down the pike. If your car is old and you know you'll be replacing it within a couple of years, now is the time to plan for that. If your dream is to put a large down payment on a home, then set goals and start to save. The truth is things will happen so it's best to be at least partly prepared for them so they don't completely catch us off guard.

As I write this, I'm reminded that we need to be more aggressive in saving for another car. I know it will not be lasting forever!

Anticipating needs and planning for them has really helped us in our budgeting and saving.

We cannot live in fear and money will not solve every problem. It's important that saving money does not consume us. However, we can choose to trust God with our lives and moneygive as He commands us and to budget and save the best that we can.

**Coming up next week: The Envelope System!

**This post is a part of Frugal Fridays!

11 comments:

Denise said...

Thank you for these wonderful posts, I have read some of Dave Ramsey workbook (I found it at the surplus store). I find that reading/learning how others put things into practice helps to motivate me.

gail said...

good post! i have heard some fin guru's say just as you tithe 10% you should also save 10%. sounds like a good number to me to start with for those who haven't yet started the saving routine.

now that we are gainfully employed, hubby has set up a new car savings fund, a general save fund, and our retirement fund. we have budgeted gifts, clothes, medical and all in our budget but don't consider those savings funds.

Rhonda said...

Hi Mary Ann
you just spelled out pretty much how my hubby and I do our budget

and you had me laughing out loud, really, at your advice to open to a savings account, then put money in it. so simple but so true, nobody is going to do it for you.

The Working Home Keeper said...

Great post Mary Ann! Having an emergency fund gave us a real sense of peace while my husband was unemployed.

Mary Ellen

Bevy said...

I don't know if we ever discussed this part before... but ah-haaa! another thing in common. (I thought about it before in reading other posts in your series.)

A fellow-Dave-Ramsey-en-ite.

I knew I liked you (for more reasons then one) besides the fact that you were also a former Menno.
:)

Mary Ann said...

Denise,

We love Dave Ramsey! Glad these posts have been helpful to you.

Blessings!

Mary Ann said...

Gail,

That's a good idea about saving 10 percent. Thanks for sharing that.

I should've specified in my post but the reason we put clothing money in a savings category was because when I had it in a cash envelope, I was too tempted to use the cash on other things if we started getting low on money towards the end of the month. When it came time to buy clothing that we really needed, the money was gone. So we started putting it in the bank and it's there when we need it. Usually for shoes and underwear and fun things like that. Most of our other clothing purchases come from my thrifting category in our regular budget. Same with Christmas money. Out of sight, out of mind! hahaha You gotta do what works!:-)

With my husband's disability, many of his medical expenses are reimbursed to us, but we do have to pay up front. Hence the savings!

Mary Ann said...

Rhonda,

Great minds think alike! We just do what works well for us!

Glad you liked my advice. :-) I was being funny but serious at the same time. LOL!!! Like you said, nobody's going to do it for you!

Mary Ann said...

Mary Ellen,

Our emergency fund has helped us through some very trying times, too!

Mary Ann said...

Bevy,

You are too funny! Great minds think alike. :-)

We do seem to have a lot in common, which is good! I think we both have a crazy sense of humor.:-)

Sandy@themommysplace said...

I enjoyed reading your post and it's similar to what we do in our home. We just got out of debt in Jan following Dave Ramsey program.

Yep no one can do it for you and for us we had to sink to almost the bottom before we notice we were drowning. Now we are in a much better place but must remain deligent.