Since we have starting working on our credit, it’s now time to learn how to save money. Let’s be real. Who really likes to save? I was never a saver. My mom is a die-hard saver, somewhat of a penny pincher. She’ll kill me for saying that (LOL). My dad was the opposite. He likes to enjoy his money and buys what he wants. I adopted my dad’s lifestyle until recently. I found myself scrambling when something comes up and being mad at myself about how I spent money frivolously.
There have been several money challenges that I have tried. They didn’t work for me because if I can see the money, I would spend the money. I realized that I had to find a way to save money without actually doing anything. I needed to adopt an “out of sight, out of mind” approach to saving. Let me explain the steps I took.
PASSIVE SAVING
First, I reviewed my finances. I looked for ways that I could save money without any effort. I realized that I was used to (I’m Southern LOL) paying my car note, so I could spare to save that money. Then, I began automatically depositing a portion of that amount monthly in my savings account.
Y’all, please get you a savings account. This really helps with the saving process. The easiest way to do this is get a checking account. I opened a checking account with a local credit union. The checking account already had a saving account attached, so it was an easy process for me.
Savings accounts help because money deposited in those accounts accrue interest (a little, not a lot), so that’s another way to earn a little money. Some people believe having a savings account doesn’t help them because they can easily transfer money from their savings account into their checking account when they need more money. A workaround to this is to have your savings account with a different bank. That makes it harder to transfer money. This account may still come with a checking account, but you can always leave that checkbook or debit card at home in a safe place.
I also had a large sum of money just sitting in my savings account. I decided to put that money in a CD (certificate of deposit). A CD is a savings account where you leave your money untouched, and the bank gives you an usually high interest rate premium. This sounds good if you don’t plan on touching the money anyway and just want to save it. The downside is that there are penalties for withdrawing the money early. I chose to try a CD because my credit union was promoting CD offers. I chose the 5 year variable rate CD offer. That means the interest rate increases during the 5 years that the credit union is holding your money. Also, the interest rate is fixed, meaning the bank cannot renege or change that interest rate.
This really helped me during this pandemic because banks were lowering their interest rates nationwide. A high-yield savings account is a savings account that has an interest rate higher than a regular savings account,. Mine had an interest rate of 1.5% when I opened it. It has now dropped to an interest rate of 0.5%. My CD has a 2.46% interest rate and will continue to climb. Now, we will get to the most important part of saving, budgeting.
BUDGETING
Like I said, budgeting is the most important part of saving. It’s basically setting a limit on how much you spend, which leaves money to save. Now, this is where you really look at your finances and see where you need to cut back if you need to do so. The easiest way to budget is to look at your bank account and see how much money is left over after paying all the bills. This is your discretionary income, and it’s the money you will be able to spend, invest, or save. You can decide what you want to do with that “extra” money. Look through your bank statements and find any reoccurring charges (i.e, Netflix, Apple, subscription boxes). Figure out if you still need those services or not. You may want to also lower your subscriptions, such as going down one package on your cable or streaming service.
The thorough way to budget is to calculate how much income you have coming in and then subtract how much you spend on bills, groceries, and entertainment monthly. Make sure to add in an extra $20 -$30 to each bill to make sure that you are covered if the bills fluctuate. I get paid biweekly or twice a month (sometimes, three), so I wrote down an average of what I made each check. Then I listed each bill that I had, adding the due date next to each one. I then added my expenses for each check and subtracted these numbers to the average check amount, as shown in the example below.
In the example, more money is being spent in the first half than what is being made. So you can either lower those expenses (which I suggest), work some overtime (hell naw), or hold on to $100 from the second check to cover the expenses in the first half of each month. You can also find the average of all of your expenses and only spend that amount each pay period.
To make budgeting each month simpler and not struggle, you can start off the process by having extra money sitting in your account to help cover your expenses. You can use Christmas bonuses, tax return checks, or any stream of income that you may be able to get your hands on to do this. Having extra money in an account to start this process with has helped me to be able to put all my bills on the dreaded Auto Pay (I know, I know). But hear me out, when the money is there, Auto Pay is the best thing smoking.
Having your checks auto-deposited into your account helps with this budgeting process as well. The purpose of this is not having to touch your account at all and letting it do all the work on its own. Having an extra $1000 or even $500 in your account helps with getting this off the ground as well as having way more income than you have expenses. Work on getting those bills down, y’all!
DIFFERENT BUCKETS
Another method that helped me with putting all my bills on Auto Pay is putting my money in different buckets or different accounts. I thought having one checking account and one savings account was enough. Unfortunately, I found that it is not the case. I wanted to be able to easily see what funds I had available for specific reasons. I’ve been following the self-proclaimed money motivator Sahirenys Pierce of The Poised Lifestyle on IG for a while, and she swears by the High-5 Banking Method. This method states that everyone should have the following combination of checking and savings accounts.
So, let’s think back to budgeting. Let’s say after paying all your bills and expenses, you have an extra $400 for the first check and and extra $600 the second check. That means you have an extra $1000/month to play with. You will use the checking account you already have to pay your bills. You can then transfer $200 a check to another checking account for lifestyle purchases, like getting your nails and hair done. With the last $600, you can send money to each of the saving accounts. Right now, I have a set amount of money automatically deposited into each of the above savings account types as well as a travel savings account. I also put any paper money that I receive in a piggy bank. This is easy for me because I exclusively use my debit card for purchases.
The way I save is all about automation and the “out of sight, out of mind” concept. When you have your money moving around automatically, it’s easier to see where your money is going and only use it for its intended purposes. With my play money (the money in my lifestyle account) separated, I am able to see exactly how much money I can spend on eating out or at the club (when I rarely go). It’s easier to enjoy myself when I don’t have to worry if I am spending bill money. I know this was a long post and I hope this helps you guys. I know everyone may not able to save as much or have as much after paying bills. But remember every little bit counts. And with that, talk to you later ladybugs!
