This blog contains some simple tips and advice from two regular guys. We're not accountants, financial advisors, or brokers, so follow, ignore, or discuss our ideas as you see fit.

Thursday, September 6, 2007

A Simple System For Saving Money

Posted by Paul
I wanted to share a little system my wife and I put in place that really created a nice way for us to save a little money here and there while still getting our bills paid.

We first chose a dollar amount for our checking account that we considered a "safe amount". Then we decided that if my wife or I view our account balance via our banking web page (which someone checks about 2-3 times a week on the average) and we see that our checking account balance is above the "safe amount" then we immediately transfer $100 to our ISA.

So the idea is that as we save a little bit of money here and there (by not eating out as much or just not buying stuff for a while) our checking account balance goes up, and eventually goes over the "safe amount", and when that happens we move some money over to our savings account. Whenever our savings account gets up to a significant amount we decide how we want to invest the money (or we may decide to use it for home improvements or even a fun trip somewhere).

Of course this plan assumes that you aren't living paycheck to paycheck (see Matt's article Stop planning your life around payday!), and provides a simple way to get a feel for how much you are saving vs spending.

For example my wife and I went on an out of town weekend trip which involved spending more money than usual, so our checking account dropped and it took a good while before it gradually crept back to the point where it reached the "safe amount", but when it did it was a nice signal that we were financially "back to normal".

It's also a nice general way to monitor your spending. For example, I can go back through my transfer history of my account and know how often I put a transfer through to my savings account, so I can get a general feel for how much we're spending (for example if we transferred to our savings account 14 times in 2006, but only 4 times in 2007, then maybe we need to figure out if and where we're spending more money).

Of course the checking account balance fluctuates day to day as checks clear and paychecks get deposited, but by using this simple system I can get a rough feel for how we're doing financially.

Plus it's fun to try to save a few bucks here and there and watch your account balance gradually creep up the "safe amount." It keeps you from running into that situation where your frugality only results in a checking account balance which is huge but earns you no interest, and also avoids the trap of accidentally transferring a huge amount to savings only to discover that you didn't have as much extra money as you thought when the mortgage check bounces.

1 comment:

Matt said...

This is a great system and my wife and I do essentially the same thing.