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October 3, 2005

The Importance of Regular Savings

Over time, I have realized that without certain good habits in place, my finances quickly get out of order. Perhaps the most important habit that I have learned is regular savings.

Regularly contriubting to savings account is important on several levels. Of course, it's good to have an emergency fund available for any of the countless situations for which you would need extra cash. And it's also important to save for planned major expenses, like a house or college. But there are other, more subtle reasons to build your savings account.

For example, it wasn't until I had saved a certain amount of money that I started really paying attention to things like interest rates. That led to a deeper understanding of things like compound interest. I also started educating myself about things like retirement accounts and investing in stocks and mutual funds. When you have savings, these things suddenly affect you. You have motivation to learn something that you never would have before, and that feeds into the desire to save even more. It's a positive self-feeding cycle.

Treat Savings like a Bill

Even though I understand the importance of saving money, I won't do it without sticking to a careful plan. Somehow, it's always easy to spend all the money I have available, no matter how much it is. So I treat savings like a bill. This is like what people mean when they say, "pay yourself first." There are a couple key elements to this strategy that are necessary to make it work.

First, like a bill, you need to do it regularly. Maybe every paycheck, maybe once a month, just as long as there's a regular schedule and you stick to it. If you miss your phone bill payment, Ma Bell will expect you to pay for two months next time. You can't cheat your utilities out of a month, so don't do it to yourself!

Second, figure out how much money you can save every month (this is where it helps to have a budget) and commit to saving at least that much. If you just say, "I'll save whatever's left over," you'll wind up either not saving anything, or saving a lot less than you might have, while wondering where all that money went. Budget for so many dollars, and put it in savings before you have the chance to spend it.

One more thing that may not be necessary, but I find particularly useful in keeping me from spending my savings when I don't need to, is to keep a savings account in a bank where you do not have your primary checking account. My wife and I keep our vacation, gift, and emergency funds in a savings account that's linked to our checking account. But all long term savings goes into another bank, where we don't have such ready access to it. It's just one extra little obstacle to spending that money.

So how about you? Do you have any tricks you use to help keep yourself disciplined in saving money regularly? If not, why not give this a try?

Posted by Frank at October 3, 2005 8:30 AM

Comments

Frank,
I want to email you about the upcoming Carnival but I can't find your email address anywhere on your site, please send me an email at your earliest convenience.

jim

Posted by: jim
at October 3, 2005 8:16 PM

Some savings accounts may offer a feature like automatic monthly transfers from your main account where your paypacket is regularly deposited to the savings account. You can set how much you want to be transferred. It's a really good way of learning how to start to put some money away before you can spend it, especially if you're the impulsive shopper-type that tends to exhaust however much is available in your daily transaction account.

Posted by: nonblogger
at October 4, 2005 5:33 PM

I have the same request as Jim - How do I contact you regarding the upcoming Carnival? Thanks

Posted by: Jonathan@MyMoneyBlog
at October 8, 2005 11:39 AM

I see you got through, Jonathan. For anyone else, the current "active" carnival host can always be reached at carnival [at] consumerismcommentary [dot] com. My email address is now listed under the "About" section, and it frankp [at] gmail [dot] com.

Posted by: Frank Pape
at October 9, 2005 3:54 PM

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