How To Save Money For The Future
My Mom and Dad taught me many budgeting tips. They were great examples and lived as they taught.
They got married in 1945 – right before the end of World War II. They saved $25 a month – no matter what happened – and in those days, $25 was a lot of money. They lived very economically to save that money - and by very economically, I mean that Mom used every penny-pinching method she could come up with to keep their expenses down. In the end, it paid off for them and the saving practice has allowed my widowed mother to live comfortably.
I wish I could say that I have saved money my entire life, but unfortunately, I haven’t. Gary and I lived paycheck to paycheck and bounced in and out of debt for many years. As I look back on our life together, I see that we might have avoided a lot of serious problems if we had started saving money right away.
Do you ever feel like your budget is leaking money? Do you wonder how you can get out of debt and start saving?
How to Start: Budget and Track
I hate complicated methods of budgeting, because I feel like I’m being punished whenever I try to use them. However, out of necessity, I had to learn to manage our money better and so I finally figured out a semi-painless way of doing it. As it turns out, it is the same method that my Mom used and Dave Ramsey teaches.
If you haven’t ever checked out Dave Ramsey’s debt reduction and budgeting program, you ought to. He uses the same kind of envelope tracking budgeting program that my Mom used. His debt reduction plan is wonderful.
The Envelope Method
1. Figure out what your expenses will be for the month.
2. Go to the bank and withdraw cash.
3. Divide the cash into envelopes labeled with each spending category type (groceries, hair cuts, fun money, etc).
4. Before going to the store, take the amount of money you think you’ll need out of the envelope.
5. When you return home, put the change back into the envelope and write down how much you spent on the front.
6. Stick the receipt in the envelope so that you can go over it later. This will help you spot budget leaks.
I’ve used the same budgeting method in various ways over the years. During one period, I used canning jars to store the money. It was kind of fun to see the cash in the clear glass jars and I found that I didn’t like to see them empty out so I was more careful with what I spent.
Once I got a computer and began using Quicken to track my expenses, I set up “holds” in my checkbook register for each spending category. I always post-date the “holds” to the end of the year so that they float at the bottom of the register where I can easily find them.
When we spend money, I subtract the amount from the “hold” balance of the associated spending category. Before I started using Quicken, I used a checkbook ledger and it worked well.
This practice has helped me a lot, particularly during the periods of our marriage when money was extremely tight and I had to keep close watch over every cent. Those were the days when I always carried a shopping list and a calculator wherever I went. When times were better, having the categories helped us take vacations or buy Christmas gifts with a clear conscience because I had used my “hold” program to save the money we needed.
The bad thing about using Quicken is that you use it to track debit and credit card purchases. It’s easy to lose your mind when whipping those little plastic cards out to pay for things and you can spend more money than you should. I recommend updating your Quicken register at least once a week to prevent disasters.
About Credit Cards
IF you use a credit card to pay for things, make SURE that you immediately pay it off. Treat it as if you are spending cash. I go into our online banking interface at least once a week so that I can pay off the balance. I treat our credit card like a debit card and never allow us to accumulate a balance.
Three benefits of this practice:
1. Because I pay the card off at least once a week, I am able to watch the card’s activity closely. If anything goes wrong – like the time when someone took our credit card number at a restaurant – I can quickly contact our bank for help.
2. We never pay interest. (Actually, the bank pays us to use the credit card because we get cash back once a year.)
3. I track the money we are spending so that we don’t blow our budget.
It takes discipline to use a credit card this way and if you don’t have it (be honest with yourself), don’t use a credit card at all. We use a credit card because it’s not safe to keep large amounts in a checking account. If someone gets into your checking account and cleans it out because they got hold of your debit card number, it’s very hard – and sometimes, impossible – to recover your money. As a result, we only use our debit cards when we are able to swipe the card ourselves.
Sometimes, taking large amounts of cash to pay for things doesn’t work and, of course, paying with a credit cards is the safest method of shopping online. But do what works best for you. I would just advise you to avoid debt like the plaque that it is.
Side note 1: I received a call from our banker a few years ago, who pointed out to me that I was putting us at risk by using our checking account like a savings account. Can you imagine how shocked I was to have my bank care enough to get me to fix it? Naturally, I fixed the problem immediately.
Side note 2: I’m speaking as one who used to have large credit card debts, so I know what it’s like to owe money all over the place. It’s awful - nightmarish! Once I got our credit cards paid off, I swore that I’d never do that to us again.
Side note 3: PayPal is another safe method of shopping online (assuming that you use a safe password) and it doesn’t require that you have a credit card. Some online retailers don’t accept PayPal.
Budgeting Tips and Tricks to Improve Your Attitude
1. Set aside a certain amount of fun money that you can spend any way you want without answering to anyone about what it was used for each month. Having a bit of fun money – even if it’s only a couple of dollars – makes it easier to stick to your plan because you won’t feel like you’re suffering quite as much.
2. It’s helpful to budget a little for entertainment (date nights with your spouse or lunches with friends). Maybe all you can afford to do is to go out for a 89 cent ice cream cone, but if you have budgeted for it, you’ll be able to go without worrying that you are messing your budget up.
Saving Money Tips and Tricks
1. As a small business woman, I have to pay my quarterly taxes myself – as in, I have to write checks to the IRS four times a year. Because I have always been a little afraid of the IRS, I save more than I need, just in case I’m wrong about what I owe them. Over time, the extra money piles up. But because I am afraid of the IRS, I don’t spend the pile and the pile grows bigger and bigger…
2. If you have money left over in a spending category, don’t spend it! Put it in a savings account.
3. Build up a rainy day fund (not long-term savings, which are separate) because rainy days can run your ship into an iceberg and mess up your plan. I discovered that once I got used to having a rainy day fund, my attitude about saving money dramatically improved and I always worked to replace the money if I had to spend it.
4. Use Quicken “holds” to save for things like vacations, Christmas, life insurance bills, taxes, and other re-occurring large expenses. This practice prevents you from thinking you have more money than you actually have.
Once I built up a savings account through budgeting, I felt more secure than I had ever felt in my life, because I knew that if something bad happened to us – like the time my oldest son crashed our car – we could do something about it. When the stove broke, we had the money to buy a new one.
Mom and Dad were right. Saving money is the thing to do!
So tell me… do you have any tips and tricks about budgeting and saving money that work for you? I’d love to hear about them. I’m always looking for great money-saving ideas!