It may not be sexy, but discovering what you can do with money that you save is as close as I can get!
I realized over the weekend (post forthcoming on my blog) just how much of my income I'd managed to save over the year. And since we established last week that I am not one of those people who can think of personal finance as simple math, I realized that there were some very specific rules that I follow that enable me to save without agonizing over every five, ten, or even hundred dollar purchase that might intrigue me.
Your rules may (nay! will!) be different because we are all unique, and have differing goals, income situations, and … well, just about everything else. I can't assume all of you are single people living in Portland, although that would really make my day.
But if we don't set rules at the onset of adulthood, then we get our first few paychecks and in our heads, it sounds like a Vegas payout. It's not. Then adulthood sets in and we realize that we don't actually get to spend all of our money on fun things like beer and pizza, and that the mark of being an adult has more to do with how nice we are to our future selves than how much we can borrow from them.
Here are my Financial Rules:
- Automatically put ~$450/month in my IRA so that I can max it out. My company does not offer a 401K, but you bet your britches I'd do that before an IRA, though, ideally, one would do both. ACTUALLY if you can afford to max out your 401K ($17,000 in 2012) and max out your IRA, do it. More power to you. More money, too, in the long run.
- Leave the money in the IRA alone. I have a target date mutual fund, which is just fine for my current situation. Agonizing over what to do with the money is a waste of my time, and at this stage in my financial journey, any time I can spend making money is better than time spent fussing over a measly $5000 a year.
- Automatically transfer next month's rent into savings, and don't touch it. I'm paid once a month, generally after the fifth. I also live in a basement apartment in my landlord's house. It's not a situation where the rent can be late, ever.
- Automatically withdraw car payments and car insurance payments as close to payday as possible. This helps keep me “feeling broke” and not actually acting like a delinquent who doesn't pay her car payment.
- When signing up for new credit cards, always set it up to automatically pay entire balance each month. This way, I'm not tempted to overspend, and I treat the credit cards just like they are cash. In a way, this sets my budget for next month. So, even though I am borrowing from my future self, it's interest free, and next month's version of me is going to cover it.
- Do not automate the bill I want gone the most, and go after it more than once a month. Right now, that's my student loan. I have been throwing any and all extra at that bill, hoping to get rid of it as soon as possible. I've altered this plan in the last few months, because I'm looking for a house, and need all the extra savings I can get.
- Pad my savings account, and always keep the balance above $1000. This has kept me from messing up in other areas. Sometimes it takes a few months to get it back to over $1000, but using an emergency fund to buy tires is WAY better than paying interest on tires.
- Live with the rest.
That's it — it's a lot of automation, and it's a lot of cash flowing through my account to my various other savings and loan payments, but the key to me is automation. I check back in around the 8th or so of the month (once most everything has cleared) and see what kind of cash is left in checking. Nearly every time I check, I make even just a small payment to the student loan. Now that student loan is under $2700, and I can feel the finish line.