Saving cash
Claire,
I read your article. My strategy is somewhat different. I do use my credit card; the only one I’ve ever had since 1990, to buy virtually everything. Then I pay it off each month. They never make interest money on me so I couldn’t even tell you what the rate is. It never applies to me. Plus I accumulate cash back dollars which gets me around $100 back per year. More importantly it gives me a statement record to keep.
But the biggest thing I do is to carry miscellaneous spending accounts. I started doing this in 1996 as a 28 year old man who wasn’t making a lot and couldn’t seem to know what I could save as every month the car would break down, I needed a new pair of slacks, Christmas around the corner, ect. So I estimated everything over and above weekly spending money that I may spend each month and over a year. From birthdays to Mother’s day to x-mas, light bulbs, oil changes, vacation trips, quarters for the laundry mat, yearly car registration fees, fishing license fees and on and on. I’d get a yearly total and divide by twelve. Then each month that amount goes into this account. As I use it I take it out. When each credit card bill comes I deduct the car gas, food and other charges that are already budgeted. Then I’d total the amount considered miscellaneous spending and I’d then “pay myself back” from this account.
Through the years of course inflation has slowly raised the cost of everything so the monthly transfer to this account has gone up since 1996. The account itself is a plain old local bank statement savings account. I could care less about what interest I’m earning since that’s pocket change and there is never more than $2,000 in the account at any one time. I also lump my car insurance into this account since that is something which a charge with interest would accumulate monthly if I didn’t pay for it all at once out of this account.
Recently I became a first time home buyer and opened up a second miscellaneous account for the expenses associated with this home. I judged the life expectancy of all my appliances, estimated maintenance and repair costs for them, and replacement values, threw in monthly and yearly ordinary structure maintenance items and came up with a monthly figure of $145. To this I add my home insurance like I do for my car in the other account. Unlike the other account however this one will tend to accumulate cash over the long term as I may not need to replace my furnace for 10 years. Though it will hold cash I’m not too concerned about it having the same low interest rate of my other account. This account will act as a back up to my emergency cash fund which holds 4 months of salary instead of the normally recommended 6.
So what I have budgeted for REAL savings every month becomes just that. It get’s stashed away for good barring an extreme unforeseen emergency. No cashing in mutual funds to pay for car repairs. My Roth IRA remains untouched.
That’s my system but as you can see it does take a little time and planning. The good thing though is it allows you to plan your real savings on a yearly basis and be very accurate with it. I don’t think there has been one year when I didn’t save for the long term what I planned to save. It also forces you to budget everything and to have a realistic idea of the true cost of living expenses; something many home buyers of the last few years didn’t do and then got caught in a trap.
William Turner
