How to Protect Yourself from Yourself: Savings Accounts!
As someone who used to spend every last dollar every pay period, I am familiar with the sensation that there is just no way I could put money into a savings account and not touch it. Life would happen, and any surplus left after I paid my bills would be allocated toward a need like an oil change or new tires. At other times, after
mildly majorly stressing over money every pay period, I would have a surplus and I would treat myself to a new article of clothing, or an expensive haircut, or gourmet coffee. Then I would feel what (I thought) everyone else on the planet must feel like: capable; like I had my stuff together. Because see…I can give myself nice things from time to time.
This isn’t a commentary on real poverty by any means. This is a recognition of my spending cycle: Not have enough, finally have a little extra, spend it, not have enough, and so on.
Part of the journey to Financial Security includes some savings. This should come as no surprise, but building money in the bank can be daunting to someone who has never had any. How to start building your savings is quite simple: figure out your surplus at the end of each pay period, and put that amount into a savings account (preferably a high-yield savings account).
When your zero-sum budget has been filled out, and you have given yourself a small personal allowance (more on this in another post), look at what is left. Are you typically left with $15 extra every month? $150? $500? Whatever your dollar amount is, add this amount on your list of bills you made when you created your budget. Then, pay this dollar amount every month into your savings account, just like a bill. Pay it faithfully, and automatically. The only exception is if there is a true emergency that comes up, and you need the funds to get those new tires, or pay that parking ticket. Otherwise, you keep paying that Bill every month. This is an important bill, not to be made light of, because the person who is getting paid is you.
The objective is to reach a point where you have a month’s worth of essential expenses saved up in your savings account. At this point, we can divert our attention to other endeavors (retirement accounts, etc), but in the meantime, this step is crucial to stopping that vicious spending cycle that always ends in not having enough money.
The reasonable allowance allows for you to treat yourself from time to time, and this Savings account will be the beginnings of your Emergency Fund, to be used only for an emergency: Something unexpected, requiring immediate action. Unless you already have a healthy Emergency Fund set up (the eventual goal is 3-6 months of essential living expenses), this is not to be used as a travel fund, a shopping fund, or any other invention of the mind. This is for situations when “life happens” and this cushion preserves your budget.
If you are able to build an Emergency Fund, you do not need to wreck your budget if something comes up. You can pull out of your EF, pay the surprise medical bill, and keep your budget intact and on track. No other bills have to be put on the back burner because you already have the money set in “reserves” to cover the truly unexpected. A major purpose of budgeting, (other than making sure you pay all your bills on time and have what you need, and a few things you want), is to cushion yourself with a savings account.
There is no way to “get ahead” without savings. Frankly, I don’t like the phrase “get ahead” because (brace yourself) I believe life is a journey to be enjoyed (not a race) and every moment on this earth is a gift. Cornball, I know! I also know from experience, that some moments suck, and life can be hard. But my word! We are all here alive on this planet. What a trip. 🙂
So while I don’t like using “get ahead” I spent most of my 20s playing “catch up”. We can use the linear analogy of forward and backward, ahead and behind, and I hope you know what I mean. Basically playing catch up sucks. Its rough worrying about each paycheck and feeling like you can’t catch a break. There’s some pleasure in the whimsy, but not usually when it comes to money. Being uncertain about money threatens our instinct to feel secure.
Building this savings may seem intimidating, and maybe imagining a life with Financial Security seems fanciful and even impossible. However, when the situation inevitably arises where you need some extra funds to cover the unexpected, you will be relieved and proud of yourself for making this a priority. If you’ve ever heard the expression “Pay Yourself First” that’s what this means: Savings!
And its nice to watch your money stack up. It will strengthen your financial confidence to watch your money grow, no matter how slow. Once you’ve made it a priority, and pay your savings account just like a bill, you will be amazed at how simple it turns out to be.