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.
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