What’s Your Saving Style?
You know you’re old when cocktail conversation is a discussion of interest rates, inflation, and index funds, followed by talk about the many ways a marriage can work. (We used to talk about sex and music. What happened?) So, it’s official: I’m old.
Exhibit A: I sat over iced coffee several weeks ago with a friend as she recounted her extremely complicated and basically nonsensical way of saving. It involved an arbitrary and ever-fluctuating amount tucked away in a savings account, and a cash-only system organized by labeled envelopes. My friend admitted it made no logical sense, but it works for her. She’s managed to tuck away thousands on pizza shop salaries.
And then there was last night’s discussion of getting your financial goals in order. After you have an emergency fund and no debt, what’s the order of operations? Should you focus on padding your retirement fund (a very unappealing, though wise prospect for someone in her twenties)? Or set aside accessible cash for your first home? And with the market so scary, should we keep our money safe in savings accounts? Or should we ignore those troubling daily fluctuations and invest? There are enough questions to make Socrates wince!
So how do you save? Do you have automatic withdraws set up so you save without really feeling it? Stuff money in envelopes or under the couch? Have you ever seen a financial planner to talk about this stuff or do worship at the feet of Suze Orman’s books? Have I asked you enough questions yet?
vintage piggy on Etsy
Brooke: A couple of years ago I’d been reading up on saving and investing and felt like we just couldn’t put away more than we already were (I wasn’t drinking a Starbucks a day! I didn’t have the latte factor to save instead of spend!). An Edward Jones advisor actually came knocking door to door in my neighborhood. She was young–about my age–and obviously eager for clients. So we met with her and laid everything out on the line and she helped us get organized about setting goals (a house AND retirement) and adjusting the amount of our savings in different accounts with different short-term and long-term goals. Since our initial meeting, we have continually upped our direct deposits into savings and investment accounts and I have *never* missed that money. I wish I were the sort of person who would do my own investing, but the truth is, I like having an “expert” to consult and I feel more secure about the future even with the effects of the recession.1 year ago
Kristina Strain: Marriage makes things interesting, doesn’t it? This might seem odd or difficult, but it works for us: My sweet and venerable husbands pays all our shared expenses. ALL of them– mortgage, phones, groceries, electric, dinners out. Bless his heart. I work three jobs. Two are part-time, for “fun money.” By saving 100% of the income from the other job, I’ve socked away a hefty down payment, and we are in the process of buying a house.
Though odd, (and thoroughly reliant on Patrick’s selflessness), this style really works for us. As the saver, and the thrifty one, I’m constantly trying to best myself. Trying to spend less, stretch it further, Be a Better Human. And I must say, I get such a magnanimous charge out of holding this chunk of savings for us, as an investment in our relationship. It makes something sweet and romantic out of saving money– which is inherently un-sweet and un-romantic. This is a wonderful topic, Sarah; I love it!1 year ago
Samantha Angela @ Bikini Birthday: Being in my twenties I find it wise to invest in riskier funds because the money I invest isn’t something I need right now. I have room to allow it to fluctuate up and down.
I also have an open mortgage that I pay down in perpetuity which is my only debt at the moment.
I am a budgeter. I try to log everything that I spend so I can look back and the trend and see on what items I spend a lot and on what items I don’t that way my future budgeting is reasonable and I don’t find myself in tight constraints.1 year ago
Anne: I love some of the tips mentioned above. I am a writer living on a shoestring. Right now, I can’t save much — ok I’m not saving at all. But I never touch what’s in my savings (only for BIG emergencies) and the credit cards are hidden. It isn’t saving, but the situation is also stable. My credit is good, no credit card debt, etc. I hope this means that soon, when more money is available, it can go directly to the piggy bank.1 year ago
Sasha: So apparently my 20′s self was much wiser than my 30′s self is when it comes to money (or perhaps it’s that now in my 30′s I’m into Layoff 2.0 whereas I worked at the same company for 10 years starting at 23).
But whatever the case, in my 20′s I decided I had to take advantage of time and sock away as much as possible into my 401k. So I contributed 15% for years (until I was laid off), even though I didn’t make a big salary. I also contributed for at least 9 years or so $100 a month into a mutual fund. By contributing on a monthly basis you are supposedly taking advantage of what’s called “dollar cost averaging” meaning that you take advantage of the ups and downs in the market and theoretically overall pay less and make more (although if you have bad timing this might not actually be true). This provided a nice emergency fund for Layoff 1.0, which involved changes careers. But for you it could mean a nice downpayment for a house, money for having a child, etc.
You could theoretically save also 7.5% in a Roth IRA, and 7.5% in a 401K, to take advantage of the 1st time home buying $10,000 tax free with the Roth. Of course, all of this depends on stable employment–as my 30′s have taught me, job security is not what it used to be. I’m glad that I have my 401K that I put as much as I could into in my 20′s, as working on all of these career changes (we’re supposed to have 7 in our lifetime but I really hope not!) obviously hasn’t allowed me to save like I’d ideally like to.
I would gather ideas from everyone, as you’re doing, because who knows what works well for you! Also, who knows what will happen with the world in general in the future, so as they say “diversify!”1 year ago
Sara: While saving up the down payment for our house, we opened up a bank account at a local credit union. Each month we’d deposit a check into it from our primary account, and over time we saved up enough to buy our first home. The main tip-no ATM cards from that bank. If you can’t access it on a whim, it’s much less likely to be spent!1 year ago
bethh: I know a lot of the advice we read is to automate savings, and I DO have my retirement savings taken out pre-tax, but I have a payday ritual where I transfer money to various accounts (my separate checking account for bills, my savings account, my travel savings account, my extremely-expensive-meals out savings account, and my other miscellaneous short-term expenses account). All those transfers have the effect of leaving me a couple hundred bucks in my daily spending account, which leaves me feeling poor enough that I usually don’t splurge much, but it’s nice to know I have cash tucked away elsewhere should I need it!
I don’t own a home and am only now getting near having a good-sized emergency fund. My job is secure and my priority is travel, now that I’m out of debt, so that’s why my savings are structured the way they are.1 year ago
Sarah RN: When my husband and I were newlyweds, we kept track of every single purchase and saved every single receipt for one year. This gave us a really firm idea of where our money went and how much to budget for things like gas, groceries, dinners out, etc.
We then created mini-budgets for those categories, and also for an “allowance” for each of us to spend as we liked. We took out cash every 2 weeks and once it was gone, it was gone. Everything else stayed in the bank to pay bills or went to savings.
A few years later, we no longer use the cash budget b/c we have a much firmer grasp of how it all works and trust ourselves to use the debit cards – but we are still able to save as much as we ever were, even with a lot more bills.
For us, the overall trick remains communicating our money goals to each other. Even though we may have different saving/spending styles at heart, we make sure that we always have goal in mind (saving for a big purchase, paying off a school loan, socking away money for daycare…) and this has gone a long way towards eliminating those nasty money fights that so many couples have to face. Good luck to everyone!1 year ago
Lex: I love Suze Orman! I’m currently working my way through her book, having opened fee-free daily transaction accounts, applied for a no-annual-fee credit card and am currently considering how to supplement my retirement savings but also save money for a home. I don’t believe in automatic savings being taken out, I do what Bethh does. I use excel to track all my spending, then on payday I see what is left over from the last fortnight and put all of what’s left into my high-interest savings account. When the money is enough I put it into a term deposit to get even more interest.1 year ago
C.: I have a pretty strict budget at the moment, so after bills are deducted from my paycheck I only leave enough in my checking account for gas, groceries, and a comfortable – but by no means extravagant – amount for social activities that pop up (dinners, drinks, etc). Credit cards are only for emergencies, or for unexpected expenses like car repairs, medical bills, etc. that I didn’t leave money in my checking for (money gets shuffled over from savings to pay those off immediately). I only contribute 5% to my 401(k) right now, but I may increase that after I save enough for a down payment on a house.1 year ago
wendy: Oh my goodness! If I was only this savy in my 20′s we wouldn’t be living the way we do now. But anyway, we did do the investment thing, and then we met with a budget counseler to figure out how to live with what was left. We did have to do the debt reduction program for 6 years and thankfully all we have debt for is our home. It was tough, tight, and teaching. We have been blessed with new understanding as well. Most of what sticks with me right now, because I practise them daily, are the little tricks to save money. Like rounding up in my checkbook. Using my debitcard with a register helps as well. In 6 months we can save 4-500 $ doing this. It also keeps me in the black and I will never have a bounced check! We do use envalopes to save in specific areas. Giving, medical, gift giving.Then it goes into a larger savings acc’t. We have just now started saving for our future, while having a 20th anniversary! Crazy! Each of us recieves an allowence and once that is gone, it’s gone. And we can’t blame the other for spending too much! We don’t do starbucks as I happen to be a coffee snob. Working with coffee for years has taught me a few lessons. (It still only costs about 12 cents to make a cup of coffee, even in a bad crop year.) We don’t go shopping on a daily basis. We Christmas shop all year round. We don’t have pets because we can not afford to take care of them, not because we are heartless. Our children have learned at an earlier age then we did, how to save for their futures. My youngest has just taught me her own envalope system. I am blown away… she is saving now for when a plane ticket will deplete most of what she has, as well as saving for camp, and banjo lessons. She is much more savy then I will ever be. One wonderful trick we were taught was that we should pay the bills together so that we knew just what was going where, but to make it fun. So we shared a soda and a small bag of m&m’s. Or later, when we cut out soda, we would make a pot of good coffee and I would make cookies. Kinda hard to fight with your mouth full of cookies.1 year ago
Michelle: The only way I manage to save any money is to hand it over to my husband so that he can deposit it into our joint savings account. Knowing that he is counting on me to contribute my fair share each month keeps me honest. I don’t want to let him down, so I never miss a ‘payment’. I wasn’t a great saver on my own–there wasn’t anyone to hold me accountable. We aren’t quite sure what we’re saving for. We want a house someday, but the market in our city is beyond outrageous and we know that it’s not worth living hand to mouth just to own a home (assuming we could even pull it off financially in the first place). With the economy what it is, we are concerned with having “emergency” money more than anything else. I’m currently reading a book called The Worst Hard Time, which is about the people who lived through the Dust Bowl. I can’t think of anything else that has reined in my spending more than this book has–what luxurious lives we already lead by comparison to these poor people! It’s put me in a frugal frame of mind, and has really put a number of things in perspective. One day, the economy will be better and we’ll take more risks with our money and start thinking about big investments….until then, we’re playing it safe.1 year ago
Alison: My friend Danielle told me that if you start a Roth IRA when you’re thirty, and put $300 a month every month, you will have a million dollars by the time you retire! So, since I’ll be 30 in a mere 3 months
I’m going to start figuring out how to open one.
Also, I have ING account that automatically deducts $500 from my checking the first of the month. Sometimes I put $450 straight from ing into my checking account the next day…but I’m trying not to do that anymore!1 year ago
katie: I’m a waitress and so I commonly have the luxury (and awful temptation) of cash in my pocket rather than retained inside a paycheck. Unfortunately this cash is often spent here and there until it’s gone, and I’m not even sure where it went. Then, last month I got an old purse out of the closet and found just over $100 from a Sunday morning of waitressing–I didn’t even know this money was gone, yet somehow I was stressing about how to pay the rent. It made me realize first how badly I handle my money, and second that it is possible to “hide” money from myself–every so often I’ll shove money into a little tin or envelope and hide it in a nook or in our storage closet. When things get tight I remember the money, and when they aren’t, I’m not spending unnecessarily.
I love hearing about everyone’s saving practices–they are very telling about personalities, aren’t they?
Thanks Sarah!1 year ago
Christine S.: I have to say that I’m mighty impressed with all of you, youngsters!!!
As a single mom of two on a limited combination of professional teaching budget/child support with one of two children almost college-bound, I’m wishing I was a bit more proactive in my 20s with future-minded savings.
Saying that, though, I do the best I can with what I have. And, having a pension that hopefully will remain in existence is a nice option. However, every penny counts!
Sarah, it may behoove you to speak with a professional investment firm and do some of the simple at home tasks that were mentioned by other blog readers. I have to say that Kristina’s perspective is AWESOME!!!1 year ago
gidget: Love the vintage piggy bank!
1 year ago
I am still trying to learn how to save. I am pretty good at making budgets and sticking to them. I work best with using cash a allowance each week. I find when i just use my debit card i don’t keep track of what i am spending. I am pretty good at saving when it comes to something concrete like a trip ( i love to travel) and have a savings acct. for setting aside money for upcoming trips. it’s learning to have an emergency saving fund that i am not so good at
tea_austen: Oh, sister. This is right up my alley. I am currently trying to figure out a better system (or really, any logical system).
Love all the suggestions here. Thanks so much for posting on this topic!1 year ago
Sara Rose: as we are in our late twenties and broke as can be, sadly, every single penny we make goes straight to bills. I kid you not. Any “Fun $$” HAS.TO.BE. budgeted through the month for things like gas for cars, toilet paper, blahblahblah. However, I don’t miss the wild and aimless lifestyle of shopping constantly when we did have money. The rush was never that fulfilling and now I find ways to give, even if it leaves us at zero. As for the kids and special treats, they always come before N & I. Every month, I tell them they have $5 each to pick out some new toy or doll or crayons or whatever. Obviously my son is too young and I help him pick out his stuff, but it’s taught E alot about living on very little means.1 year ago
Sara Rose: Oh and I live for the day that we have more than $25 in savings.1 year ago
hannel: Oh, I just have to weigh in. Sadly for the people we know, budgeting and saving has become a favorite topic of mine. I know this doesn’t make me cool, but I love it anyway.
Our number one savings strategy is zero-based budgeting, which means that we “spend” our money on paper as soon as it comes in. That way, even though it’s sitting in our bank account begging to be used, we can just ignore it. If I want to buy a book, I only do it if there’s money in the “book” category of the budget (yes, I have a book category), regardless of our bank balance.
The other thing that has really helped us is to set a series of money goals with monetary rewards at the end of each of them. For example, we just reached a goal to have a full month’s worth of expenses in our checking account so that we’re always spending last month’s money rather than this month’s (so much security in that! I love it!). Because we did this, the next $300 that comes in is going to buy a Roomba. This works in two ways: first, it means that we put off large impulse purchases; second, we’re really motivated to reach our savings goals. Our next goal is to top up our long-term savings account/emergency fund, which is at about five months of expenses, but which I (the security-loving one in our marriage) want to have at six months worth of expenses. Once we do that, we’re putting $1000 towards a winter vacation.
One tool that has really helped my husband and me in the last while is You Need a Budget (don’t know how to post links in comments. Sorry). It costs $60, but it paid for itself in the first month for sure. Before we bought it, we were saving receipts and plugging them into our DIY spreadsheet. This works, but it’s easy to get lazy and stop. YNAB lets you download transactions right from your account online.1 year ago
Laura: Ooh this topic is so much fun for me, I’m not only a finance geek but also a financial advisor by profession. Normally I would only tell clients this in a recommendation meeting but I’ll see if I can give a watered down version here in the comment section.
All financial literature will tell you at least 3 tips in common:
1) Find a financial planner you trust (why? You will get further ahead with a planner than you will on your own. It’s like working out with a personal trainer. They know what will get the best results and will push you harder than you will push yourself.)
2) Pay yourself first.
3) Save 10-30% of your GROSS income. This doesn’t all need to go to retirement, but a large chunk of it should.
In your 20′s and 30′s you have time on your side to take advantage of compound interest if you start socking money away for retirement now. The earlier you start, the less money you have to put away to get a very large nest egg at your retirement age. You should also take a quiz to determine your risk tolerance, but with 30-40 years before you retire, you have time on your side to put your money into riskier equity investments because you can ride out market fluctuations without taking your money out and losing – you can wait until recessions recover and regain any losses as long as you leave your money in the investments. These investments are volatile in the short term but over time, will go up. Mutual funds are a great way to diversify your risk.
And lastly you should determine your priorities between four key financial planning areas:
1) liquidity (quick access to cash for emergencies and opportunities)
2) retirement
3) disability – income replacement in the event that you couldn’t work due to injury or sickness (SO IMPORTANT! At age 25, your career earning potential is your #1 greatest asset and it’s worth MILLIONS. You should protect it. It’s very cheap to protect when you’re young and healthy)
4) financial security at death – aka life insurance. Most people don’t need it if they’re single with few assets and no dependents, but there’s often a large need in the future if you are married with kids and a mortgage. It’s a good idea to start small now with permanent life insurance and build, rather than wait to buy it all later.
Rank each of the 4 in terms of importance to you, then allocate your available money each month to each area but add more to the higher priority areas and less to the lower priority. And keep in mind you may already be contributing through group benefits plans to some, so take those contributions into account.1 year ago
Laura: Oh and I forgot to mention – you asked if during these shaky economic times, if you should just leave your savings in your bank account to keep it safe. Absolutely not.
Everyone has heard the term “buy low, sell high.” If you leave your money in your bank account until the market recovers, what you are actually doing is waiting so that you can buy high. Buy now – everything is on sale! You will profit when the market recovers. It will eventually, it’s just that nobody knows exactly when.1 year ago