Saving Your Money

Pay Yourself First

Saving.

You know you should do it. You know its good for you. You’ve even heard that you can be rich if you would just save 10% of your income.



But you chose not to do it.

Why?

--“I just don’t make enough.”
--“I have too much debt."
--“10 Percent won’t make that much of a difference.”
--“I’ll start on my next paycheck. I need this one for bills.”

I’ve heard every excuse in the book. Heck, I’ve made every excuse in the book. But I know that they are just that: excuses.

You can’t afford NOT to keep at least 10 Percent of what you make.

I grew up with a wonderful set of parents.

Now, I didn’t think so at the time, mind you.

My parents were very responsible people.

They would go to work every day, were never once late, would do a superb job, and come home.

Their motto was “its better to be an hour early than a minute late” and unless they were taken to the hospital, they never called in sick.

They taught me the two most important things you can do to excel in any job:

--Show Up On Time
-- Do What You’re Told

If you do these two simple things, consistently, without fail, not only will you excel at the position you have, you will be promoted, and given raises faster than you thought possible.

But, I digress. They taught me about working hard for my money. But they never taught me to make my money work hard for me.

I opened a savings account when I was 11 or 12. I think I had $15 in it. I never put anything more in it. It was intended as a place where I could store money until I wanted to spend it. It was not a savings account.

There was never any lesson on how to save, only on how to spend.



So everything I now know about saving money, I have learned on my own through trial and error.

First let me say that no matter your debt, no matter your current financial situation, no matter how hard it is for you to pay your bills, you can’t afford NOT to pay yourself, first.


What does “first” mean?
You did all the work, you deserve to have a cut of your income before anyone else gets his hands on it.

Before your rent, before your groceries, and before Uncle Sam.

Yes, I mean that you take out the first 10% of your gross income, and pay yourself with that even before you pay your taxes.

---

Does it strike you as funny that every generation thinks that they invented the kiss?

Seriously.

In the back of their minds, most people think that the French Kiss is a new invention, that their parents couldn’t possibly have known about that. Or other things of a sexual nature.

But, your parents thought the same thing. And so did your grandparents.

And it doesn’t stop with a kiss.

Our generation did not invent money, did not invent savings, or spending.

Our generation did not invent credit, or debt.

We did not invent the desire to consume, or the feeling of entitlement that overcomes common sense when it comes to luxury items.

A fascinating book called The Richest Man in Babylon shows you that our ideas about money are not unique to this millennium. They have been around since civilization began. Interestingly enough, the ways to get rich are the same too.

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I hear you:

"I want to save, but, its all so boring.”

That’s the big secret you know.

The real reason why we don’t save.

Why we live paycheck to paycheck, instead of consistently making ourselves rich.

Saving Money is Boring.

Fine Dining is fun.

New Cars are fun.

Exotic Vacations are fun.

Numbers on a page are not.

But what we fail to realize is that by not saving a portion of what we earn for ourselves, we are depriving ourselves of a future, and are making ourselves poor.


Ok, so now you know that you need to save, but what do you do with the money?

First, you should have a completely liquid fund of 6-12 months worth of expenses, or around $10,000.

Whoa!

That looks like a large amount, doesn’t it?

But, I promise you, it will happen.

Ideas to Jump Start Your Savings Plans

It will start small, but then the powers of compound interest will start to happen.

What exactly is Compound Interest?
Compound interest is noted as the greatest invention of mankind.

I’m sure you’ve heard that if you put money into your savings account, it will grow. And I’m sure you’ve seen a few cents here and there and think “this is stupid”. But the problem isn’t in the method of compound interest. It is where you are compounding your money.

Compound interest basically says if you put, let’s say, $1000, into a savings vehicle, at 10% interest, it will grow to $1100.

If you keep the money there, then you will earn the interest the following year off the entire $1100, not just the original $1000.

What that means is that your interest will keep growing, larger and larger, year after year. All you need is a little money, and time.


My favorite example of compound interest is Manhattan Island.

What is now called New York’s Manhattan Island was purchased from the American Indians in 1626 for $16 worth of trinkets and beads.

Had the Indians sold the beads, and put the $16 into a savings account with a 5% annual interest rate, guess how much that $16 would be worth today?

$ 2,745,186,908

Yes that’s over 2 TRILLION dollars! And this is a Conservative Estimate.

Once you start to put money into the bank, and see the power of compound interest, it becomes fun.

I promise.

Which brings me to another point:

Please do not store your money in a local bank savings account.

Most of those accounts pay less than ½ of 1 percent interest.

Those really are pennies.

Instead, place your liquid funds (6-12 months expenses or around $10,000) into an ING Direct Account

Earn a high annual percentage yield with the Orange Savings Account - No Fees, No Minimums & No need to change banks! FDIC Insured.

This is where I keep all my liquid reserves. It is still easy to get to the money in an emergency, but is not so easy that I can get it out without thinking it through. Perfect for emergency fund access!


So you know that your 6-12 month liquid reserve is for “emergencies” but what exactly constitutes an emergency?

An emergency is something that is totally unexpected.

Something like a death in the family, or the loss of a job. Maybe an on-the-job injury, or a fire or hurricane.

An emergency is NOT a vacation, a new pool, a new car or car repairs.

All these things need to be planned elsewhere.

For car repairs, which is commonly misunderstood as an emergency, you will need to estimate how much you spend each year.

So, if you spend, say $3000 per year on auto repairs, and you get paid every other week, you would need to divide $3000 by 26 to get $115. Set that aside each paycheck for auto repairs.

This principal, anticipating your spending needs, is described more fully in Mary Hunt’s book Debt-Proof Living: The Complete Guide to Living Financially Free (Debt-Proof Living (Paperback)).


Soon you will have your emergency fund fully funded. Then it really gets fun.

Once you have accomplished this, its time to start investing.

One of the reasons we invest is for retirement.

If you have not done so already, make sure that you enroll in your companies 401K plan.

Most companies match a certain percentage of your contributions. For example, my husband gets matched, dollar for dollar, 100% of the first 2% of his income that he contributes. For the next 4%, his company matches 50%. So if he contributes 6% of his wages to his 401K, the company will contribute an additional 4% of his wages for him.

FREE MONEY.

This contribution is before taxes, so you get a tax benefit for contributing.

After you have exhausted the 401K matching abilities of your company, it is suggested that you take any additional fund that you have available for retirement and open a ROTH IRA.

Click here for the Advantages of a ROTH IRA.

You’ll want to hire a financial planner to help you with where you should be putting your money.

It’s worth it to hire one.

Don’t go out and find the cheapest one there is, either. You won’t hesitate to tip a waitress 20% for good service, so don’t skimp out on your financial future!

Your financial planner can go over with you the next step in investments, pertaining to your unique situation.

You will talk about things like the stock market, stock options, tax lien certificates, commercial and residential real estate investing, and so on.

Some wonderful, crash course books on investments that will hopefully lead you to your next savings stage are:

Multiple Streams of Income

Rich Dad, Poor Dad: What the Rich Teach Their Kids About Money--That the Poor and Middle Class Do Not!

Cashflow Quadrant: Rich Dad's Guide to Financial Freedom

Rich Dad's Guide to Investing: What the Rich Invest in, That the Poor and the Middle Class Do Not!

These books might get you on the right path to realizing that not only can you save and invest, but with the right knowledge, you may even grow to become wealthy.


What about Debt?

If you have heavy consumer debt, I would still suggest that you save your 6-12 month emergency fund, or around $10,000 first, before you pay off large chunks of your remaining debt.

Why?

Because if you get into an emergency situation, and you do not have any emergency funds, what happens? You go further into debt.

First, plug the leak.

Then worry about keeping the water in the bowl. Its a lot easier than just pouring in more water, faster.

Also, I would highly suggest, if you haven’t done so already, to begin a car fund.


What’s a Car Fund?

A car fund is a special savings account for your next Car Purchase.

Once you are car payment free, set up a separate savings account and contribute the amount you have been paying on your car.

This way, when it is time to purchase a new-to-you vehicle, you have the money, in cash.

No more car payments!

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