Thursday, March 25, 2010

Living UNDER your means - Part 3 The other version

It's not a mistake that I've written two posts with the same name. This is the one I intended to write in the first place. The other was written days earlier but I decided to post them at the same time. Pick the one you want to read or read them both. If you do read both I would appreciate knowing which one best met your needs right now. Feel free note your impressions in the comments or if you would like it private you may email me.

Developing a savings plan is just as important if not more important than figuring out how to reduce your debt. The reason for this is that is because even if you could get out of debt tomorrow if you have not disciplined yourself to save, which is the true test of living UNDER your means, you will go right back to the charge cards whenever a minor or major glitch in the plan comes up or you find something you really want. So the time to start saving is now. The initial amount may be small but it can be increased as you develop the habit. Just as we would not expect a runner to start off running 5 miles the small consistent efforts will eventually pay off in increased stamina and ability.

This article is primarily written for those who have little or no savings and contains ideas to help you get started, however, if you already have savings these ideas may be a reasonable way to get a quick boost over the next three months. By definition savings is to keep, set aside, or hold on to and should be distinguished from investing which is having a sum of money dedicated to increasing in value through interest or profits. Over the last few years there has been a tendency to use the words interchangably as in when people have used the phrase "retirement savings" for funds invested in the stock market.  The difference is important as investments can go up and down whereas the purpose of savings is to hold at least the same value as was set aside.  The old expression of putting your money under a mattress is a form of savings.  It was set aside to have available when needed.  The ideas below can help you save (set aside) at least $1.000 or more over the next three months depending on how successfully you are able to implement them.

Define your savings goals. Will this be an emergency fund? A savings account for your next car or vacation? A retirement fund? You don't have to pick one. If you have $100 a month to save you can divide it between the three categories. Just make sure the goal is reasonable. If you are saving for a car that you want to buy in a year you need to have a monthly amount that will be enough to make it.

What is an emergency to you? This may sound like a silly question but if you dip into your savings every time you need a loaf of bread or gas it is not going to stay very long. Think about this ahead of time so you are prepared to answer yourself, yes, discipline yourself when the situation comes up.

A common reason for people to want to save right now, while you are In The Trenches, is so that you will have a reserve during the lean times. If you are unemployed it may be a difficult time to think about a college fund or retirement fund no matter how worthy these goals are. Just getting through until you get another job may be the best you can hope for.

In addition to all the average ways people save (which are very good) here are a couple more non-traditional methods you may not have thought of:

Start a Food Storage Program. A good beginning plan is included in In The Trenches - Financial Survival During Times of Hardship. A more extensive plan is can be found in the link to Food Storage Made Easy also located on the left margin. A food storage program not only saves money but also builds a SAVINGS ACCOUNT of the most important thing your family needs. Food.

Pay Required Bills Ahead. Gain a credit balance on your lights, basic phone service, car insurance and other bills that will let the payment stand as a credit. Aim for three months ahead. This does not include things like credit cards that would be happy to take your whole check and require a payment the following month. Those need to be handled separately in your debt repayment plan. The bills I am referring to now are what you need each month to keep a roof over your head. Also, do not include cable or other non-essential services because you may later decide to cut these back or shop around to reduce the cost of these.

Make Your Savings Account Inconvenient. Don't make it too easy to get your savings. Your top dresser drawer is probably not the best place. Open a savings account across town. You can make the deposits by mail. When it comes time that you might need to take it out ask yourself for the entire trip "Do I really need this money right now?"  If the answer is no then turn around and go home.

Wait At Least 24 Hours Before Withdrawing From Savings. This will help you overcome any impulse pangs you may be having.

Trust a Friend, Parent, or Adult Child To Hold Your Money. Choose this person wisely and instruct them not to give you back the money even if you beg, plead, or bargain. Allow them to give you the 3rd degree and brainstorm other options before they hand over the cash.

Keep a Change Jar or Piggy Bank. These ideas have been around forever because they are easy and still work. No cheating by picking out the silver.

Purchase Savings Bonds. You can redeem a bond early but you will forego the interest. These are better for long term savings goals but can be a good way to have an out of sight out of mind savings. I once was buying one every payday and then forgot I even had them until years later.  There is a link on the left that takes you to the U.S. Treasury Site or they can be purchased at your local bank.

Silver. Another savings plan I had at one time was to buy one silver ounce piece each payday. They come in all different designs so can be fun to collect. Their value will vary as the silver market changes but are easy to hang on to for a month or a lifetime.

These are just some ideas to get you started. Of course you could just open a savings account at a bank and start making deposits. That works too.

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