Every penny should have a purpose.
Saving money can be such a complicated process. As a financial counselor (and person that has totally been there!), I see people everyday that try to put $200 in savings every month, but then pull from it throughout the month and eventually land in my office for an emergency loan. Saving money is more than just putting money away. Setting goals and assigning every dollar will make it so you have money to save.
Designating money into seperate accounts takes the guess work out of saving. If you assign each dollar to some aspect of your spending life, you will have more control overall.
Here is a list of savings accounts that everyone should have:
- Rainy Day Account
- Kid #1 (for education and big expenses like a first car!)
- Kid #2
- Car Down Payment
- Medical Bills
- House Down Payment
- Car Maintenance
- New School Clothes
- Vet Bills (if you do not carry pet insurance)
Forget the main savings account!
The advice that I give everyone is to forget the main savings account, and open up several little ones. I always recommend an account per kid, one for a big purchase like a car or a house (or both!) and a rainy day fund, which I tell people to actually nickname “Rainy Day Fund.” What happens with people that are stretched is they get surprised by an unexpected bill, like new hockey equipment for your son that didn’t tell you the team he has ALWAYS dreamed of getting on requires he have his OWN equipment! When people have a rainy day fund, they have money to cover the bill. By saving $25 a month, you will have saved up $300 in a year.
Car Maintenance Does Not Have to be a Budget Killer
Another scenario that I see constantly is someone needing a loan to fix their car. Car trouble turns into money trouble really fast, and it pains me to see people put expensive car maintenance charges on their credit cards. I recommend everyone put away $50 a month towards car maintenance. That will create $600 in a year. A car needs new tires about every five to six years depending on how much you drive and what the roads are like. A new set of tires can cost $400-1000 again depending on the make and model of the car. If you save $50 for five years, you will have $3,000- much more than you need for new tires. You can even get a new paint job or have money for a down payment on a new car.
Don’t get caught with your pants down – or with an empty wallet. Plan ahead and assign every dollar a purpose.
I would love to hear of any other ideas people have for mini savings accounts!
We have lots of little accounts – gifts, vacation, car maintenance, home maintenance, and baby money (for if/when we have another baby. Starting one for each kid is a good idea, too.
Dave Ramsey talks about having $1000 built up as an emergency fund and then hitting the debt pretty hard. We have a savings account for each child and $10 per paycheck goes into it. That’s hardly anything….a drive through round of sodas for everyone…but come college time or marriage time or “Hey Dad I want to start a business” they will have something to draw from. It’s important I think to give each dollar a NAME and PURPOSE or they just disappear.
Such a great article Carmen, thank you.
Angela <><
Yes! each dollar needs a name and purpose. My husband and I just added another account – we have accounts for each of the boys, but we decided to open one for when they need a car. They can either have whats in the pot, or match the amount and get a better car – whatever it is in 15 years that is =) I <3 Dave Ramseys advice. He is a financial genius!
Great advice, if you actually have money to spare! We can’t even catch up until my husband’s child support payments are done.
When we were trying to create our “snowball” to pay off debt I found that even little things like not drinking soda pop anymore really added up. I switched from soda and juice, to water and saved about $50 a month for the whole family. It helps to write down in a notebook every. single. cent. For about a month. Then you will clearly see where you have money that can be “freed up” for other purposes.
I stopped drinking Starbucks and switched to drip coffee and creamer and I can save an extra $100 a month. I’m also addicted to coupons…and at the end of the shipping trip I see how much I saved and ten transfer that money from my checking into one of my savings account. I tell myself it’s money I would have spent anyways so it wasn’t “mine” to begin with…it’s extra I can save.
Ack typos… Writing on a phone is hard. Meant shopping and not shipping and then and not ten.
I think having separate accounts is a great idea. We have them for taxes (self-employed), college expenses, etc. I also assign income streams to different accounts. That helps the money from disappearing into the checking account.
Our family has been following Dave Ramsey for about a year and rather than having several accounts, we have envelopes that are locked in our safe. These envelopes include an emergency fund and “sinking” funds. Sinking funds include school clothes, car maintenance and “oh mom by the way I need XYZ for school.”
Tammy