I love Laine’s comment – Save, save, save. Saving money requires discipline. It requires a strategy. It works really well when the saving is automatic. It works even better when you develop a mindset for saving.
Usually we think of saving in 2 ways. First, we have savings accounts, mutual funds, retirement accounts, and CDs. Laine herself mentions having an emergency account, retirement account, and freedom account. My family has structured our savings in a slightly different way:
- retirement accounts
- savings in the form of cds, savings accounts, and Sharebuilder accounts
- college savings in the form of savings accounts and TAP accounts (Pennsylvania)
- emergency savings
- short term savings account for yearly and quarterly bills
Our total savings each month is about 15% of our net worth. We’d like it to be higher, but we do need to pay off our home equity loan and car loan to free up more money for savings.
Second, we think of saving money on areas in our budget/spending plan, particularly groceries, but really all the areas are open to savings. If we’re disciplined, savings in these spending areas can go directly into savings accounts. Each time we save money on a bill, I look over the accounts and decide which ones need to have additional money. Sometimes the money goes directly to savings. Other times I’ll add to an existing spending area. For example, since the price of oil is going up, I’m saving a little extra right now for next year’s heating bills.
Making Savings Happen
When my husband and I became serious about our finances, we started with Dave Ramsey’s advice to have an emergency fund of $1,000. This ensures that almost an emergency can be handled without using a credit card since using the credit card would add to the debt load. Even a $500 emergency fund can provide a cushion while focusing on paying off debt and saving.
Our next step was to automate our weekly savings. We did this for the emergency fund, the retirement accounts, and the college savings accounts. I took the amount for the year and broke it down into amounts which come out of my husband’s paycheck every week. Because I’m a bit of a nerd, I do keep a running account of these amounts even though they happen automatically. It helps me focus on saving when I’m reminded of our different accounts each week.
How does your family handle savings?
Thrifty Thursday at Coupon Teacher