Friday, June 18, 2010
My Two Cents On Budgeting: Savings
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.
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.)
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 money, give 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!