We’ve talked here before about controlling the money before it controls you. When you’re spending all of your money as it comes in, the idea of saving even a couple of bucks seems like a pipe dream and saving up to be able to send your kids to college? That feels impossible! But it turns out there are ways to do it. No, really. Trust me.
Start With Your Budget
If you don’t already have a mapped-out budget, now is the time to do make one. There are lots of resources online that you can use to learn how to make one if you’ve never done it before. Make sure you include a line item for stashing a few bucks each week into your kids’ college fund. If it’s in the budget, you have to do it! Treat it like you would a regular bill.
Now, Play With the Numbers
Do you see all of those credit card bills you’re paying the minimums on? Add at least 10% to that payment. For example, if you’re paying $50 a month on Credit Card one, add another $5 to that. This helps you pay those bills down a little bit faster. It’ll still take a while to pay off a bill completely but when you do (notice I didn’t say if); here is what you do with that payment:
Split it in thirds. One third goes into your savings account. One third goes into your kids’ college fund. The final third gets distributed evenly over your remaining credit card and loan payments.
Do this with each credit card as you pay it off. Then, when your last debt is paid off, divide what you’d been paying in half: half to your savings account and half to your kids’ college fund.
It’s important to do it this way because otherwise you’ll look at that sudden $55 (or whatever) as “extra” money. It’s not “extra.” You’re saving for important stuff!
Next, Look at Your Utilities
Utilities can be frustrating because they are so variable. Teensy electric bills in the summer. Crazy high in the winter. How are you supposed to budget for that, let alone put money away for savings?
Look at each utility. What was the highest amount you paid last year? That’s the amount you need to budget for that bill every month. This way, when the bill gets higher you won’t panic, because there is already money set aside to pay it. You’ve planned for it. Go ahead and exhale the panic you’re used to feeling.
During any month that your utility bill comes in at less than you’d budgeted, take whatever’s “leftover” (aka doesn’t get sent in to pay the bill) and divide it into thirds. Two of those thirds go into your kids’ college fund. One third goes into your savings account.
You can apply this same logic to other parts of your budget, like the money you spend on gas, at the grocery store, etc. Budget at least 25% more than you think you’ll spend. Then if you don’t spend that much that month, divide up whatever is leftover between your savings and the kids’ college fund.
Finally: Maximize Your Account Potential
Just because you’ve always done business with your current bank doesn’t mean that you have to keep doing business with them. Check around in your community for local credit unions. If none of those float your boat, spend some time perusing online account options. Online banking isn’t scary and, like credit cards, most online banks will do things like refund fees charged by an “out of network” bank ATM. You’ll also typically get the highest CD rates online.
Remember when I told you there would be a bonus section about CDs?
When you’re ready to take what you’ve saved and roll it over into a higher yield account try a CD (the first baby step into money management). A CD is basically a savings account you’re not allowed to touch for a few months or years. Dollars to donuts, you’ll be able to find some great CD rates with an online savings account, and you don’t necessarily have to start with a huge deposit. Discover Bank lets its customers open CD accounts with only $2,500.
Here’s the thing about CDs and why they’re a good start for investing and for saving for important things. Like I’ve already said, they’re basically just a strict savings account but with a higher interest rate than you’d get on a regular account. They’re also great for people like us—the people who are used to spending as quickly as we earn. Why? Because, unlike a regular savings account that just sits there, tempting you with its stores of cash, you can’t dip into a CD. It helps you get used to the idea of saving and helps you build up your resistance to the lures of a stack of cash that might whisper things like “new shoooooes…the brand name chips……” or whatever.
Try these tips and let me know if you have the same success with them that I did! Did you change anything? Have you tried something different? Share your accumulated wisdom!