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Step 4 in the process of finding financial balance is learning how to save money.

I recently read an article that gave some frightening information--last year for the first time since the Great Depression, the personal savings rate in America fell into the negative. Millions of people are living on the edge, financially.  In this article I want to explore why saving money seems so difficult and help you realize the value in developing the habit of  paying yourself first.

Putting money into a savings account each month has little to do with the amount of money you earn.  One reason people don’t save is that it is unclear what they are saving for. Paying yourself first by putting part of every paycheck into a savings account will get you started. And you’ll be amazed at how good it feels to see that bank balance grow.

As I became more accountable with my money I was shocked to see that I always have money to put in savings... -Tammi J

That old saying was something I often heard from my parents.  I remember thinking, what does that mean?  For a lot of us, every day is a rainy day, the belief that “I need all the money I make just to live.”

I remember a time when I didn’t save money; I didn’t think I had money to spare. Until I realized the importance of saving, I spent my whole paycheck, even when my earnings increased.  So when an unexpected expense came along, like car repairs, it became a crisis.  This led to sleepless nights, worry, anxiety, all caused by a normal life event.  I would end up using a credit card or having to ask my parents for money. Here I was, a grown woman with a decent job. I should have been able to pay for my own expenses.

So it’s not about how much money you make, it’s about having a healthy relationship to your money and learning to save is a big part of building that relationship.  Today, those ordinary life events are no longer a crisis for me as the money is there, planned for just this kind of emergency. And the same can be true for you.

I've saved more in the past six months than ever before... -Liza Z.

There are three main types of savings accounts, each earmarked for your individual needs.

1. Periodic Savings

This is money you put away for non-recurring expenses that come up throughout the year, such as a vacation.  When you plan your family vacation, do you also plan how you will pay for it?  That is as important as choosing your destination.  If you intend to travel in August and the trip will cost $2000, you will need to put away a sufficient amount every month so that you will have what you need when vacation time rolls around. Being able to pay for your holiday instead of racking up more credit card debt will make the whole experience more enjoyable. 

The vacation is only one example of the non-recurring expenses you need to plan for.
Make your own list of upcoming expenses. These could include new tires, home improvement projects, car insurance or school clothes. You get the idea.  Total these up and you’ll have the amount you’ll need in your savings account to meet these expenses without going into debt. This may seem daunting at first, but when you get in the habit of putting money away each month, you’ll see…it feels good. Then, next time the car breaks down you don’t have to panic.  Planning along with the action of saving the money you need for the year ahead will give you a tremendous boost in self-esteem.

2. Prudent Savings

This money is for providing a cushion in case you lose your job or  become ill.  Therefore you need to ask yourself a couple of questions. First, what is the likelihood that you will be laid off, and how long will it take you to get another job?  The answer to these questions will give you an idea of how much money you will need to save. 

For example, if you were to lose your job and you estimate that it would take you three months to replace it, then you will need to save enough to cover three months of expenses. Subtract any benefits you may receive during that time, such as unemployment compensation.

The next question to consider is what if you had an illness that prevented you from working? Do you have disability insurance? If so, how much of your income will it replace?  Once you calculate this you will be able to determine the amount of savings you will need to cover the time you’d be unable to work. When does the disability start? After 30 days? 60 days?  You will want enough savings to cover expenses until the insurance kicks in. 

3. Investment Savings

This is money is invested for your future, such as  401K accounts and IRAs.  It is long-term, not easily accessible. This is also the money you put aside for your children’s college education, a down payment on a home and any other long-range goals.

The idea of paying yourself first may seem daunting, but start small.   Take the action of putting some money in a savings account this month for a periodic expense that’s coming up within the next few months, something you may have previously put on a credit card.   Start to develop the habit of saving.

By making savings a priority you will gain peace of mind:

• When the roof leaks or some other unexpected expense occurs; the money is there because you planned.

• If  you or your spouse becomes ill or lose your job; the money is there because you planned

• When it comes time to retire or pay for your child’s education; the money is there because you planned.

Putting your financial life into balance will add an element of self-confidence and financial security to your life, which is well worth working toward.

Yours in Financial Balance,
Shelley Bayol

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