I’m going to turn the savings world on its head. Okay, so I’m being literal, not revolutionary. But then again, maybe it is a little revolutionary…
Personal finance thinkers (i.e. the so-called experts, bloggers, etc.) have long agreed on what is now considered a go-to mantra: Pay Yourself First. Heck, some of you even mentioned it as one of your three personal finance rules.
I’m still going to pay myself first—but I’m actually going to do it. Huh? Let’s back up for a minute and explore the whole concept of savings.
Savings, Traditionally Speaking
What does paying yourself first mean, in the most common way?
Most people would define it as putting away savings as the first “expense” you make from every paycheck. Many would also advocate doing so automatically so that you don’t really see the money going in—it just sort of…piles up there.
It sounds really good in theory, and a lot of people have found enormous success with this type of automated approach.
There’s only one problem: it doesn’t motivate me. I actually like knowing what’s going on my savings account. I love seeing the money pile up; the transfers going on. I like doing it personally and actively.
Ironically, I’m such a fan of our Wachovia Way-2-Save account (free plug, Wachovia—you’re welcome). But although it’s automatic, every time I’m in our envelopes system categorizing transactions, I get to drag over money to the account and “drop” it in. It feels fantastic!
But there’s another factor that’s even more important—what hurts me the most (financially speaking) is taking money out of savings. I hate, just loathe using money from my stash for anything, unless it’s somehow life-threatening (okay, maybe not quite that bad). But why make that a crutch? I’m going to use it to my advantage.
The Experiment
For the next six months, I’m going to try a little experiment based on the two major influences I’ve outlined above.
All of our income, including all paychecks, will be deposited in their entirety (yes, 100%) into our savings account. Wow, talk about a feel-good drag & drop! Every time I go to the bank now, I am going to be “saving” our entire paycheck!
In essence, I will be starting every single month with the best-case scenario: our entire income saved away. Contrast this with the way most people save money: whatever’s left over at the end of the month goes into savings. Month after month, I’ll be motivated and starting on a solid footing, not scrambling to find left-over money.
Logistically speaking, after our paychecks are deposited, we’ll review the upcoming month’s expenses and decide how much money is needed to get through the next 30 days. We’ll transfer that out and only that much (Remember, I don’t like taking money out of savings! How useful that has become…)
What stays magically in the savings account is all the extra, juicy fat we won’t need for the month—the awesome and growing savings stash.
The whole paradigm of taking money out of savings for our expenses meshes perfectly with my use of the envelope system. We will be in full control of our “income” each month based on that month’s requirements.
And unlike the common approach (spending based on your checking account balance), we’re taking control of what that balance is.
Come Back in 6 Months…
I hope you’re starting to see how different this kind of approach is. Just by reversing a few things, I’ve turned my entire persona from being primarily a spender (save from checking) to primarily a saver (spend from savings).
Have any of you tried something similar?
I’m going to give it a shot for 6 months and evaluate the effect of this mindset on everything from our spending to our bank account balance (the “proof is in the pudding,” so to speak). Let’s see how it goes…
Photo by Max-B
Fiscal Fizzle 
Woj, sounds like a great idea! It truly shifts your mentality on how you view your money. The only down side I can see, is if you end up taking money back out of savings often enough, you might retrain your brain to think it’s no big deal to do so! Doubtful, but possible.
Good luck!
.-= Jason @ MyMoneyMinute´s last post: The Credit Crisis Visualized =-.
Awesome point, and I will definitely have to look out so that doesn’t happen!
I completely agree with you about how painful it is taking money out of savings – I thoroughly dislike it! We do a less drastic version of what you do; most of our bills go out of the account automatically at the beginning of each month, but when we are paid we add up those regular bills, and our likely regular expenses, will be, keep just enough money to cover those payments in the current account, and shift the rest straight into savings. We deliberately tend to keep ourselves a bit short of money, so we can save as much as possible, but if we really need to transfer money back from the savings account, we will do so.
.-= Penny Farthing´s last post: The cupboards are feeling bare… =-.
Yes! The “keeping it short” part will be one of my favorite features. I know there’s a stash to fall back on, but I want to create a false scarcity mindset in our checking account.
I think you’re on to something here, I love it!! I’ll be following to see how you do!
Awesome, thanks! Expect an update in about 6 months. I’ll try to get an idea of the difference between our old savings rate and our new one!
This is exactly what I’ve been doing for the past 2 1/2 years. I pretty much know what my monthly expenses are going to be, so at the end of the month I transfer from savings to checking what I’ll need for the next month (I also keep a $1000 buffer in checking just in case). Pay check gets direct deposited to savings monthly and FSA reimbursements get direct deposited as they occur. I thought it was so cool when I first set it up, and its been working great for me. Hope it also works for you!
That’s awesome–I’m glad it’s working so well for you. I hope to have similar success.
I’m always a sucker for a good experiment!
I like the idea, Wojo! Very interested in seeing if this actually results in you saving MORE money than you did previously.
Looking forward to a complete analysis this summer!
Best,
Len
Len Penzo dot Com
.-= Len Penzo´s last post: Why the Self-Employed Are Smarter Than You =-.
I have a feeling it will! Even if it’s a wash, it’s already changed out mindset when it comes to spending.
This is lifehacking at its best. You are taking advantage of your own traits to leverage your ability to save… More power to you!
.-= LeanLifeCoach´s last post: America Saves Week =-.
That’s what I like most about this! It’s not the typical approach to savings, but it’s something that I feel will work very well for us!
Very interesting Idea, I’m looking forward to see how it works out! My only fear is that if you continually start to get so low on your checking account each month, you may have the temptation to just regularly transfer more money out of your savings-essentially treating you savings like your checking, but with more hassle. However, CG has had success, and I wish you success too! If this works, I too may give it a try, it really does sound like an excellent way to save!
Part of the key for me is having a buffer in my checking account. I keep enough that I could go through most of another month if I needed to. Mostly I do that just in case my bank’s website is down at exactly the wrong time and I need to cover rent (This has never been an issue, and I give plenty of time for the transfer, but still, things go wrong at banks occasionally and rent must be paid). However, having the buffer means that if I overspend slightly in a month, it’s no big deal. I can replenish with the next month’s transfer.
It takes some awareness of what you’ll probably spend next month (mine really only changes when car insurance is due), but it works great for me! Keep us updated, MyFinancialObjectives and Wojo!
Absolutely–I think a checking buffer is one of the first things you should establish before you even start saving. $1-$2K is usually pretty good, depending on how much you spend during any given month. Like you point out, it also allows you to over-spend within reason in a short-term kind of scenario.