Save It Before You See It
April 17th, 2008 | by rachel |
Could you benefit by saving money you don’t see each month? I suspect that there are plenty of people that treat their money the way I do - whatever is left gets spent (and then some)! For people like me, figuring out a way to save money “automatically” can make a huge difference in your bottom line. If you need to save, save it before you see the NET each month. If you need to invest, send it straight to a broker before it hits your bank account. If you need to earmark for a specific expense, do it as part of all the other deductions from your paycheck and it won’t hurt as much. After all, if you save it before you see it, you won’t miss what you have never had. Right?
Saving automatically is not difficult, but it will require a little bit of planning, a few phone calls and/or signatures and a definite commitment to following through with it. Once it is in place, you won’t have to worry about it anymore. Here are some specific ways to make it quick, easy and seamless:
1. Pay Yourself First - This is one of the first and most common pieces of advice you will get regarding your finances. For those who plan to save with “whatever is left”, it’s also one of the best pieces of advice there is. However you need to, make your savings a priority! To start with, the amount that you set aside is not nearly as important as developing the discipline to do it regularly.
- Use Direct Deposit - automate your deposit to include one to your checking account AND one to your savings account at the same time.
- “Bill” yourself for savings - create an actual “savings bill” that you pay each time you receive a paycheck. Treat it as a fixed expense and give it the same attention that you give to your mortgage, utilities and car payment.
- Fix your withholding - If you are receiving large tax refunds each year, you are letting the government use your money interest free. Spend some time to figure your withholding correctly and bank the extra cash flow in your savings account. You will earn interest on the money AND you’ll have some cash on hand if you need it.
- Focus on liquidity - Make sure this savings account is something that you can access quickly and easily. Certainly, maximize the interest you are earning but understand you need to have cash readily available, regardless of the interest you might be earning.
2. Take Advantage of Retirement Account Opportunities - Chances are, your employer offers access to some form of retirement savings. Spend the time you need to learn about those opportunities and take full advantage of them. In most cases, contributions to those accounts are deducted before you receive your paycheck so you never miss the money. It is, by far, the most painless way to save money. Not to mention, many employers will “match” contributions to a certain level. If you are not participating in these programs, you are passing up free money! Even if your employer doesn’t provide opportunities for you to contribute to retirement accounts, there are a number of tax deductible and/or tax deferred accounts available. Contact a financial advisor in your area to help you choose the savings options that are best for you.
3. Special Savings Programs - In recent months, some banks have begun offering special savings services to their checking account customers. These programs link a checking account with a savings account at the same bank and make automatic deposits into the savings accounts each time purchases are made from the checking account. For example,
- Bank of America “Keep The Change” Program - This program is a “virtual” loose change jar! It rounds each check card purchase up to the next dollar amount and transfers the “change” to your savings account. During the 1st 3 months of enrollment, Bank of America will match 100% of your contributions to the account. After 3 months, they will continue matching 5% of contributions to the savings account up to a $250 maximum for the year. The matching funds are taxable via IRS Form 1099 but it is still some free money coming your way. The deposits are coming out of your checking account balance but those small deposits can add up quickly!
- Wachovia “Way2Save” Program - This program transfers $1 from your checking account to your “Way2Save” account each time you make a checkcard purchase, pay a bill online or use an automatic debit. After 1 year in the program, Wachovia will give you a 5% bonus (maximum of $300). Again, more free money! These savings accounts do have limited numbers of withdrawal transactions (6 per month) but they provide immediate access to cash which solves the liquidity issue.
Making a commitment to saving money isn’t easy. There are ways, however, to make it happen automatically. You don’t have to settle for saving “whatever is left” if you take the time to set up a system to save it before you see it. Start today and find out how fast your savings will add up!