Bad Math/Good Math

I am sharing tips and tricks on how Tom and I saved 30% of our income in 2011.  So far I outlined some caveats and told you about Makin’ It.

After you have some money, know your budget, decided how you’ll make saving fun while at the same time making it hurt a little (oh, isn’t that always the best anyway?), here are a few extra things to consider…


Step 2: Be good at Math.  Except Once or Twice.

The purpose of our budget was to track Every. Single. Thing. We spent money on.  At some point, that’s impractical.  This is where you should be bad at math.

Early on in the budgeting, I realized I had “double dipped”.  I counted vacation savings twice.  This subconsciously is exactly what I learned from my mother – to purposely balance my check book a few hundred dollars in the poor.    If you do it from the start, you forget that money is even there.  And it seems that is half the problem with saving – if you know it’s there, you’ll spend.

She still does this.  And I kept this error in our budget.  It allowed for a few months of extra savings, lessened the blow of emergencying, and meant that I could let the $3.50 cash for snacks while running errands slide without going crazy trying to figure out why I couldn’t hit our savings goal when none of our categories were in the red.

Step 3:  Stick to your budget

I track our spending weekly.  At first it felt like pulling teeth and I’d hyperventilate when we ran out of meat before the 25th.  It was also difficult because we did decide to maximize our credit card rewards which meant using the cards as often as possible.  So the numbers on the spreadsheet never equated to what was in a physical account.  That was the hardest for me.

But stick with it.  Things get into a cycle, and most spending automatically started to fit our budget needs.  Once the month was halfway over, major bills had been paid, and things looked good – I put the target savings away in a hard-to-access account.  Then at the end of month, I put whatever else was leftover away too.  (This was earmarked for large projects we didn’t fit in our monthly budgets. For example, our pet budget was mainly was to cover food and cat litter.  The animal’s yearly vaccinations came out of earmarked leftover savings.)

Step 4:  Make Your Money Work In a Safe and Comfortable Environment

Between us, we already had two checking accounts, two savings accounts, and a money market.  The savings accounts are barely used, just a few hundred in them each because they don’t draw enough interest.

OK, let’s face it, NOTHING draws enough interest these days.  But you know what I mean.

The money market is a nice place to keep our emergency funds because while slightly constricting (only 6 transactions/month), it is linked to a checking account and one huge transaction from one to the other is all we need to face the financial part of emergencying.

But we still wanted the most bang for our buck.  And since we wanted access to the money in one year, and to continue depositing money in the account all year long, we were pretty much limited to savings/money market accounts.  I researched and found that one of our credit cards did online banking with one of the best interest rates around.  (A whole 1.1%!  Whatever.  I’ll take it over 0.1%)

I will disclose that Tom and I had done this before – set up an account with an online bank.  I found it disconcerting and for reasons I can’t remember.  Maybe we didn’t have enough nest egg to have money kinda out of reach?  I do vaguely remember having to physically mail a check to make deposits.  And the online interface – our sole connection to our money – was obsolete and unfriendly.  So the fact that this was through our credit card company and I like their online interface already made this a much different experience.

The fact that it’s a savings account means I can’t write a check on it.  The fact that it’s not part of my regular banking/bill paying scenario means I don’t even consider this money when faced with a budgeting crisis.

So, separate savings accounts, CDs, what-have-you.  Put your savings somewhere you can’t easily touch it and it makes you some money.  We earned $100 on interest.

(One note:  some accounts require minimum deposits.  I believe this one did.  I put some of our emergency fund in there to start, then “paid” back the emergency fund with monthly savings until all was even-steven.)

If you are saving money not to accrue cold hard cash but to pay down debts, look into either automatic payments or the ability to pay more than once a month and do the same thing as I did – half way through the month make sure all looks well and get that horrible excess cash out of your bank account before you do some damage.

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