When we were coming out of debt, we were advised to just save something, even if it was only $5. a month. There's a certain amount of psychology to getting yourself setup to save even if its a small amount. We were also told to allocate a small percentage for entertainment. Entertainment could be a video rental, Starbucks, whatever you think is entertainment. There are free concerts in Malls and parks. But, I do still believe that you should put the vast majority of your money towards debt. One other person said to start with 1% of your gross earnings for savings and work up there.
That is why I think the $20 challenge is so great. If you're doing all of the other things with your regular income, you could save up for your emergency fund with the challenge.
I'm with Aleta -- there was a significant psychological element to having an EF when I was digging myself out of the hole (credit cards and car loan). Sure, I could have paid off the debt sooner if I hadn't had $1000 in the bank -- yes, I know that was an itty bitty baby EF, shush, it was a big EF for someone making what I made at the time.
There were two times when I ran into the need for more than I made in a given month while I was paying everything off; the first time (medical -- uninsured pneumonia) went on a credit card, the second (car -- replaced bald tires) came out of the EF I'd scrounged up since the first time. The second time was much easier on me, as I didn't have that helpless/hopeless feeling that I was still just digging myself in deeper and would never escape. Part of that may have been that I wasn't miserably sick and still working, part of it may have been the fact that balances were much lower the second time, but mostly it was nice not to see the last couple months of payments wiped out when the car needed new tires. I felt more in control of the situation, which actually led me to be even more disciplined about paying everything off, esp. once I moved to CA and got a better paying job and could do a lot more damage to the balances every month.
I've always been in the "savings first camp"...until recently. We had a small EF, about $700, but it kept being whittled away at. We had credit card balances that we had been paying down for almost 10 years. Then I checked my credit and found it to be pretty good. So I applied for a new card with 0% interest on balance transfers (providian) and moved the balance off the other card (citibank, managed through CCCS at 9%). I paid it down and, as my 1 year started to run out, I applied for a new citibank card with the same offer. Then applied for a Kroger (grocery store) rewards card. Now we have about $1500 left in a balance on the citibank card at 0% unitl next Oct, and we use the Kroger card for everything and pay off the "statement balance" every month. I've been leaving the extra in the savings account to earn it's pitiful 2.2%. But perhaps there is a better use for the money.
Since I don't have any interest on my balance, it's not really a funciton of my 2.2% versus the 22% card interest. But I could be paying the card off quicker, and reaching my debt free goal sooner.
Also, and here's the reason I'm writing, I have two cards right now, as was mentioned. One has a balance with 0% interest, and is never used for purchases. The other is used for every purchase, and is paid off every month. I could use my dual credit card system as my EF.
Let's say I had a car repair bill of $1000. I don't have the money sitting around in savings anymore. But I can't afford to carry that balance at 23%. so I put it on my Kroger card initially (and earn my $10 in rewards), then immediately transfer the balance to my Citibank card, where it will sit with 0% interest until I can pay it off. Doing this will cost me $30 in a balance transfer fee. Minus the $10 I earned in rewards, it costs me $20, or 2% amoratized over the 10 months left until my 0% offer expires in Oct. At which time, I expect to apply for another 0% card offer...
I totally agree with you. Although you only had $700 in your EF, wasn't it great that you already saw that with an adequate savings in the future that you would be a little more self-sufficient. I think those o% cards are great if you have the discipline to use them and not to get into debt again. The majority of people don't have that kind of discipline.
I just think that it's a good idea that you set yourself up to think about the future and also a little fun on the side so that you won't be totally frustrated with the process. Yes, those times will come, that the little or big emergencies will pop up and what do you normally do but to put it on the card. I just think that it's just reeducating yourself about and allocating and saving for those times.
I have seen people pay off all their credit cards (maybe they inherited money and used that or worked overtime). Then within a year they had run their cards back up again. I think that it is important to establish the habit of saving even if it is only $5 a week rather than wait until they are paid off. Personally I always kept $500 in the bank while paying off debt as I would get very discouraged if I had to run the cards back up again for an emergency. I think you have to understand your own personality and know what works for you.
The challenge isn't so much to pay off the credit cards as it is to live without abusing credit. Like Laceshawl I've watched people manage to clear their cc accounts after heroic struggle, only to slide back into debt.
Learning to live below one's income is the trick that seems to elude so many. It all comes back to money management, and that's the theme of this site. How one gets there is less important than the lessons learned and applied along the way. The elimination of cc card debt is a means and not an end.
I transferred the credit cards around to keep getting the 0% so I paid no interest, but I kept using the cards. Finally a few years ago, I decided to pay off the cards and only charge what I could pay for each month. I have managed to do that for several years now. I have always had a saving account and I would not feel comfortable without one. Fortunately, I do earn 5.25% interest. I have a girlfriend who had no savings. I asked her if she could just save $5 each week. She said, yes, but what good would that do? That was 30 years ago, I wonder how much money she would have now?
From each paycheck, I allocate money to different categories. For instance, I allocate money monthly to car maintenace, home maint., Xmas spending, gifts, household suppolies, car insurance, and many irregular bills that will become due. I transfer this money from my household spending account to my money market and let it sit there until the bill is due. Sometimes I don't know if you call this saving or not. I call it allocating because it will be spent. Also, to me saving is for the future for shortterm needs as well. Saving for a car, downpayment on a home, vacation, etc.
From each paycheck, I allocate money to different categories. For instance, I allocate money monthly to car maintenace, home maint., Xmas spending, gifts, household suppolies, car insurance, and many irregular bills that will become due. I transfer this money from my household spending account to my money market and let it sit there until the bill is due. Sometimes I don't know if you call this saving or not. I call it allocating because it will be spent. Also, to me saving is for the future for shortterm needs as well. Saving for a car, downpayment on a home, vacation, etc.
I used to try allocatng so much for each bill until I gave up! It was just too much work to recalculate my budget every time something changed.
So I take my hat off to people like you you who does budget that way.
Now I let a budgeting program do all of the hard work for me. I put in bills once and frrom then on the program does all the hard work. It shows me how much I need to put in the bill account each pay and even tells shows me on the calendar what is going to be happening.
In the old days I was always getting surprises, now I spend less than 10 minutes a week on the budget and it's always right.
Dear The Budget Man,
Please name your budgeting program. You boght it on web or issue yourself?
Thanks.
Hi we spent over $150,000 developing the "Personality Budgeting Program". It's the first ever budgeting program that can be used in different ways to suit different people's personalities and needs.
The program started out 20 plus years ago as what I needed for our budget and has grown and grown till today where it is popular in over 42 different countries.
Hi we spent over $150,000 developing the "Personality Budgeting Program". It's the first ever budgeting program that can be used in different ways to suit different people's personalities and needs.
The program started out 20 plus years ago as what I needed for our budget and has grown and grown till today where it is popular in over 42 different countries.
As with anything, I think that it depends upon one's own level of understanding. Personally I find an Excel spreadsheet easy to use, although I admit I want a different way to budget. My preference is to see financial results of my present actions, for months/years down the road. Presently, my spreadsheet is calculated out for the next 4-5 years, but I'll have to see if the "personalitybudgeting" can work better.
And FWIW, my preference nowadays is to use 0%-2.99% credit card balance transfers, and move it into either an ING direct savings account, or EmigrantDirect savings account (and make sure to use it to pay the minimum payments, and pay the CC in full before the low balance transfer rate expires).
OK, a quick glance tells me that the "personalitybudgeting" isn't for me.
Why?
We're not at the point that I believe it would be of use.
This is because my wife and I charge every single thing we can on our reward card, and pay the bill in full when it arrives. Thus, our day to day expenses are literally on the credit card (and we get the 1% or 3% - for gas purchases, cash back when we request it), only to be paid in full. It's the equivalent of using cash, but getting the rewards at the same time.
If someone is having trouble budgeting, it looks like that may be a very good product to try though and for a relatively small fee.
The title of this article probably caught you a little by surprise. The first thing to make clear is that the article's title is not a typo. That being said, you are probably wondering why an author dedicated to helping people with their personal finances is writing an article that plainly states not to save money. The answer is quite simple: there is a much better way to be utilizing your money than putting it into your savings account.
Before we get into the heart of this article, let's take a minute to look at money from a different perspective. Most people assume that if they have an account with money in it, then they have "savings." On the surface this may seem logical, but if you take a deeper look into the reality of most people's financial situation, it simply isn't true. What they have is not savings, but an easily accessed pool of money in case of an emergency.
Most people see the two as the same thing. This article will show you that they are not. Savings is a pool of money that you have above and beyond all current debts that you owe. While most people have a pool of money that is easily accessible in the event of an emergency, this money is rarely money above and beyond their current debts (if it is in your case, you can disregard the article title and save to your heart's content). While this concept may seem like trivial semantics, understanding the difference will go a long way in helping you truly save money for your future. Let's look at an example that will help to illustrate the point.
I assume that most of you have a savings account of some type. If you are lucky with the current economic conditions, it is earning a few percentage points in interest each year. Let say, purely for example's sake, that you have $5000 earning 2%. On the surface you would assume that your money is gaining 2% a year. Unfortunately, you also have to take the inflation rate (the increase in cost of the same items year to year) into consideration. In this example, the current inflation rate wipes out the interest you are earning meaning that you are breaking even each year. While breaking even is better than losing money (the situation if you kept your money someplace that isn't earning any interest), we still need to take into account some other issues that most likely apply to you.
Chances are you have some credit card debt. Let's say, again purely as an example, that you're paying 18% interest on a $5000 outstanding balance on your credit card. While the money in your savings account is earning 2% (which is actually 0% when inflation is factored in), you are at the same time paying out 18% to the credit card company for the same amount. Taking this into account means that your $5000 in "savings" is actually losing 16% a year (or 18% with inflation factored in). While this is definitely not a rosy picture when you thought your were saving money all this time, it gets even worse. You are required to pay taxes on the 2% interest you earn in your savings account while you are paying the credit card interest rate with after tax dollars.
When you look at your savings from this reality, the first thing that should be obvious is that it makes no sense to "save" and thus the title of this article. Don't save money! Instead, take any extra money you have and start paying down your outstanding credit card (or if you don't have credit card debt, any other) debts with it. By taking this approach, you will be getting an 18% guaranteed return (or whatever your current credit card interest rate is) on your money instead of losing 16+%. Better yet, you will save yourself hundreds, if not thousands, of dollars in interest charges and you will move toward the point when you really can save money for your future.
I agree- why earn 5% when other money is costing you 18%... it's simple math.
It comes down to several factors. If you have an "emergency fund" but you do not budget to replenish the emergency fund, you really have a "one time" emergency fund. BIG difference. Last I checked I ran into 5-6 emergencies of varying degrees each year.
Solution- within the budget you need to see what is a FIXED cost (mortgage), what is a RECURRING expense (satellite bill), what is a "variable recurring" expense (electric) and what is a mid term fixed cost (CC bills, car debt, revolving debt)... not to mention other necessities (groceries and gas).
I make my IRA a fixed expense, and try to budget this expense as high as possible (before the wife complains). $625/month for example. 4k comes in month 7, so the other 5 months are the emergency fund. If an emergency comes up in first 7 months, IRA payment is delayed one month. If no emergency comes up, then we pay down mortgage $625 in months 7-12 (also using some of this for xmas gifts).
An emergency fund needs to funded. Every year as part of the budget.
__________________
Light travels faster than sound. That is why some people appear bright until you hear them speak.
One person's stupidity is another person's job security.
Something that I do that I'm not sure of that many people think of is that I raise my Emergency Fund by 4% a year. It could be more if some of your particular expenses are increased (house taxes, car insurance, property insurance, etc.).
[quote=jIM_Ohio;105018]
"Solution- within the budget you need to see what is a FIXED cost (mortgage), what is a RECURRING expense (satellite bill), what is a "variable recurring" expense (electric) and what is a mid term fixed cost (CC bills, car debt, revolving debt)... not to mention other necessities (groceries and gas).
I make my IRA a fixed expense, and try to budget this expense as high as possible (before the wife complains). $625/month for example. 4k comes in month 7, so the other 5 months are the emergency fund. If an emergency comes up in first 7 months, IRA payment is delayed one month. If no emergency comes up, then we pay down mortgage $625 in months 7-12 (also using some of this for xmas gifts).
An emergency fund needs to funded. Every year as part of the budget."
I'd like your points. Please explain it with more details. I am very interesting of your theory and would like to follow.
Sincerely,
jmerinka7
I figured this out after creating a budget spreadsheet and sorting through it.
Think of all the local bills you pay each month.
Account A
trash
water/swer
phone
cell
cable/satellite
electric
all of these could be paid electronically. If these bills cost $750/month, and you get paid 2X a month, have $375 from each check go into an account with free online banking, and pay these bills from this account.
Account B
Car
Student Loans
Credit Cards
Other short term debt.
If the budget for these is $2000 a month, then open a savings account and set up automatic payments for these bills from this account. Send $1000 from each paycheck into this account.
Keep in mind these bills "go away" over time, so this $1000/month accumulates once this "mid term debt" is paid off.
Account C IRAs and mortgage. I lump these together because these are long term "projects" which go away over a longer period of time. If monthly budget for mortgage is $1500, and you can budget $500/month for IRA, the total budget for this account is $2000/month. Send $1000 from each paycheck to this savings account.
The IRA would max out in the 8th month (August). So in Sept, oct, Nov and Dec, the IRA adds $2000 to this account. I use this to replace emergency fund. If a $500 expense comes halfway thru year, you could stop IRA payment for month if needed.
Account D If groceries, gas, hair and going out is $300/month, send $150 from each paycheck to a 4th account. Withdraw this money as cash on payday. When it's gone, you have to wait until the next payday for this portion of budget.
Your payroll department will give you a direct deposit form.
It will ask you amount/account. Account D is the "primary" account.
Send $750 to account A (give acct #/routing #)
Send $1000 to account B (give acct #, routing #)
send $1000 to account C (give acct #, routing #)
send remainder to primary account (account D acct #, routing #)
If you get a raise, you see it in account D, which is where your disposable/spending cash is.
If your rates for something go up, you'll see accounts A-C running at a deficit.
__________________
Light travels faster than sound. That is why some people appear bright until you hear them speak.
One person's stupidity is another person's job security.
Re: Stop Saving Your Money!
