Everyone wishes they had a stash of money in an account for ‘just in case’. The reality is, we are all human and that isn’t necessarily what happens. In fact, most of us find that when we need a few extra dollars, there isn’t ANY. No matter how much budgeting you do, you need to have some sort of amount going into a savings plan.
Have you heard of Dave Ramsey? Cash envelope system? Snowball debt payoff?
If any of these those sound familiar then you have a head start.
Let’s start with Dave Ramsey. He is a financial guru. When you start researching him (I HIGHLY recommend you do, even if you are good with money) the number one thing he tells you to do before anything else is to have at least one thousand dollars in an emergency savings account. You can add to it, but do not take from it. This is your security blanket.
Dave Ramsey teaches you about the cash envelope system. Basically, at the beginning of the month, you figure out all of your earnings after bills and budget how much money you will need that month for each category. For example, our categories are
We also have a category for each family member. We allot a specific amount into each category and since we get paid bi-weekly, that amount is for every two weeks.
Rules for cash envelope system are:
- You cannot borrow from any other category
- You cannot add “extra” money to categories the next pay period
Rule number two clarified. Let’s say you have fifty dollars for your pets. You only spend twenty for the pay period and you have thirty dollars left over. Next payday you would just add twenty back into that category and put the rest of the fifty you have allotted to that category towards savings &/or debt. Does that makes sense?
Once you hit one thousand into your emergency savings, now it’s time to move onto the snowball debt payoff. Once you have put your allotted money into the appropriate categories, the remaining will go towards your debt to pay it off the fastest. Always start with your lowest debt first. Why? Because the interest rate vs. the payment amount is always going to keep you in debt. If you look at your payment and check to see the interest charge, chances are you are only putting a few dollars towards the actual balance owed. Get rid of that debt. Once the lowest is paid off, you will take that payment amount and put it towards the next debt that needs to be paid off, on TOP of the amount you are paying for the next debt on TOP of any other monies are left after your cash envelope is filled and savings is at, at least one thousand dollars.
Finances are a very complex topic and can be overwhelming. Breathe. Don’t let it consume you, take the steps to get yourself out, but you still need to enjoy living. If Starbucks is your thing, make an envelope and budget for it, but always keep in mind priorities.
For the new year (two thousand sixteen, can you believe it?) I am doing a fifty-two weeks savings plan. This will be done through my bank, not cash. Why? Because when the money is kept in the bank you can receive interest on the amount, every amount helps!
I’m sure you’ve seen the fifty-two week challenge floating around where you start off with one dollar and around December you are putting in at least two hundred dollars around the holidays.
That doesn’t work for me.
I am doing the opposite. We are starting off with putting in two hundred in the first month and working our way down to a few dollars in December. The ending balance if sticking to the schedule will be over one thousand three hundred dollars. Here is what the year will look like:
What would you do with that?
Does starting this with two hundred dollars right away not work for you? Alter the plan to fit your needs. I have another savings plan that may work for you. It’s monthly, not weekly, and it’s in increments of twenty five. After twelve months, you will save a little over one thousand dollars.
These are a great way to get you on track and started to take back control of your finances and to ultimately reach financial freedom. Have bigger goals, set aside more money to make your savings more healthy!
How do you plan to take back control in two thousand sixteen?
Want a printable version of one of the savings builders? Pick your route, fifty-two weeks or twelve months, comment your e-mail below and I will email you a clean copy.