At first glance, saving money seems pretty generic. It’s not as complex as other financial processes like buying a house, figuring out the most efficient way to pay off debt, or filing income taxes.
But when you dig into it a little more, you realize that how a person saves money says as much about them as any other expression of their personality.
Just as each person has a unique way of completing mundane tasks, such as buttering bread, everyone handles their money a little differently.
I’m not talking about whether you’re a good or poor example of financial responsibility; there are general practices that will define which of those you fall under. I’m talking about your unique preferences for money management: what form of money you prefer, how frequently and how much you save, and what you save for.
How do YOU save your money?
The Money Jar
There will always be people who have an emergency stash of cash under their mattress or in a piggy bank or money jar. Perhaps the jar has a picture of your savings goal taped to it or a quotation that reminds you of future rewards. The security of this money and the ability to compound it are questionable, but it’s still a legitimate way to save. You might gravitate to this physical and literal view of your money.
Perhaps it’s seeing the actual growth of the money as it piles up or the association with some childhood memory, but keeping a savings jar is a practice that many find both comfortable and effective.
Even if this isn’t your main form of savings, it wouldn’t hurt to start a money jar for a small goal. In the jumble of savings and checking accounts, it can be easy to forget to set aside money for a specific goal or purpose. Having a daily reminder keeps it fresh, and the visual pressure to fill the jar can stir up motivation.
The Savings Account
Just about everyone I know has a savings account of some kind. The greatest thing about savings accounts is the power of “out of sight, out of mind.” What you can’t see, touch, or access with the swipe of a card, you can’t spend. It’s a great idea to schedule regular transfers every week or month, which will grow your savings account automatically.
Many financial experts recommend not only having a savings account that’s linked to your checking (from which you can easily transfer funds over for spending), but also a separate savings account. This account should be harder to access on a whim; withdrawing funds shouldn’t be instantaneous, so you’ll have more time to think about your decision.
The Bond or CD
Bonds and CDs (certificates of deposit) are a more serious form of savings because you have to leave the money alone for the savings to grow. These types of savings are better for long-term goals because they accumulate more interest than a regular savings account.
Stocks
Some call it investing instead of saving. Others would even call it speculating or gambling but stocks have been a way to save for decades now. For those who can take a long term approach and build a diversified portfolio, adding stocks to the mix can be a powerful savings strategy for the golden years. Focusing on long term performance bears repeating though. Stock valuations are volatile in the short term. If you let the sometimes violent gyrations get to you and panic sell whenever stock values go down and then pile back in after the stock market valuations go back up, you will lose out on the long term gains the market provides.
These are just some of the common ways people choose to save money. Each has its advantages and disadvantages, and each one works better with certain lifestyles, income levels, and savings goals. Whichever you choose, find a way to save that matches your personality and it will be a habit that sticks as close to you as, well, bread does to butter.
How do YOU save? Has it worked for you?
{ read the comments below or add one }
I have a couple of savings accounts and a couple of bonds. I only use one of the savings accounts, which is connected to my checking. I maintain the minimum balance to guarantee no fees. Then of course there is money in mutual funds, Roth IRA, 401k, etc.
You may want to consider accounts that don’t have minimums so you don’t have to keep a bunch of money earning nothing.
Again, the interest rate these days are nothing to write home about but creating the habit to maximum your passive income is a good habit to have because you will be able to carry the same mindset into high yielding investments!
“In the jumble of savings and checking accounts, it can be easy to forget to set aside money for a specific goal or purpose. Having a daily reminder keeps it fresh, and the visual pressure to fill the jar can stir up motivation.”
You Need A Budget! This above is exactly why YNAB software is the best for of savings. Every dollar is given a job, and sits there with the amount right next to it letting you know it is safely assigned for those specific goals. We don’t have a savings or CDs, jut one checking account.
You should consider having at least an online savings account. The interest rate is really low, but anything is better than nothing.
And it doesn’t have to be a huge stash either. There are accounts that have no minimums, so you can literally put in a dollar to begin saving there.
I didn’t mean to imply I wasn’t saving. But simplicity is best. Since savings accounts are so pitiful now, it doesn’t make any sense. We have allotted to our budget categories a monthly amount that covers all those irregular unseen expenses and leave it alone. Then everything else gets budgeted to either investments or mortgage pay down. I admit the 4 rules in YNAB take some learning, but the results are simplicity and less stress.
http://www.youneedabudget.com/blog/2010/trust-your-budget-and-close-some-accounts/
http://www.youneedabudget.com/blog/2014/and-fat-checking-accounts-for-all/
Interesting strategy. You are doing great as long as you are still saving and adding to your investments. Glad to hear that this is happening. Grow wealth slowly but surely right?
Make perfect sense. Cheers to finding an approach that works for you!
And awareness…if you just toss all extra income into a savings account without defining what it is for, you won’t know if you have enough for that car repair or vacation. It will just be a vague lump, possibly being allocated in the mind to more jobs than there are dollars for. Make sense?
By having a budget. Every month we put our income and outgo into a Google Drive spreadsheet. At the bottom there is a formula that subtracts our income from our outgo, and that is what gets saved that month.
Can’t stress enough the need for a budget. It takes work, but it is very much worth it.
A budget definitely helps you spend less. Then the money saved will pad the nest egg and allow you to spend much more later. It’s such a simple concept but making the effort to start tracking can be life changing!
I have automatic transfer from my pay account at 10 percent each month into a savings account, I do not see the money that grows every month and I have a saving budget that works automatically.
Saving money is not any rocket science and we could manage that if we cut off a few of our unjustified expenses. Lets set an example: How often we use to take a taxi for an office reach? We don’t 🙂 if we simply use it for once a week then the cost of the fuel can be set as the saving wadge 🙂 Its a kind of Libertarian News and one should follow 🙂
Most of us in America don’t take taxis, but we can just as easily apply the logic to a two-car household versus living closer and biking everywhere.
For too many people in first world countries, savings versus spending is only a matter of priorities!
We have a zero based budget. Every payday I first tithe, then put 40% into savings after two weeks whatever is left goes into savings as well. Then when we accumulate enough cash, I open a c.d. And then start all over again.
I find that it is easier to pull out cash when an emergency ensues, but tedious to maintain many different accounts for car, travel etc.
I should say, we have twenty years to go until retirement. We are fully funding our 401K before our net and we have no debt at all. We are half way through getting the kids through college as well.
Awesome progress lana!
Have you thought about having fewer accounts but using a spreadsheet to separate the funds into the different goals instead? It won’t have the same mental impact as having separate accounts would for some people (so this approach may not work for you), but the plus side is that you won’t have to make as many money maneuvers.
I’ve taken to keeping a savings account with an extra $1k or so in it, and a brokerage account that I put aside for higher growth but larger emergency fund possibilities.
Lana, that’s awesome that you have no debt, accumulating excellent retirement savings, and still putting the kiddos through college! 🙂
If I happen to get a cash gift, I may invest it right away (retirement savings). This may be irregular, but avoids frivolous spending. Also, if the checking balance looks too heavy and no big expense is pending, i may carve off some for savings.
Putting all cash gifts right into investments is an awesome way to save. Through time, your approach will allow you to buy not one gift with that cash but two, three, and maybe four at a future date!
I also use auto debit to transfer money from my checking to a “high yield” online savings account every month. Pay yourself first is probably one of the best and easiest ways to save.
It sure is. Now setup a few auto transfers from savings to your investment accounts (if you haven’t already) and you’ll be well on your way to financial independence!
I get excited with the prospect of seeing my stash grow and the increased passive income it’ll generate, so I’m happy to move money into investments after I allocate enough to pay the monthly bills.
This “save everything that’s left over” approach works for me right now, but I imagine I’ll have to retool the process when one day I no longer work and will need to spend what I’ve saved for decades!
On the first of every month, I have an automatic transfer set up that moves a set amount from my checking to my “play savings”. I consider this an expense (as the money will get spent eventually) so I don’t accidentally spend the money in the checking account before the transfer. I also recently opened an online high-yield savings account at a different bank with higher interest rates for my emergency fund. Out of sight, out of mind. When it was at my regular bank, I’d steal some money to pay off my credit card or buy something a bit more expensive. I had to change that behavior, so I moved to the money to a place that I can’t see unless I intentionally go and log in. My retirement accounts are both taking automatic monthly contributions. When I eventually get in to investing, that will be automated as well. I keep track of all this on a budget.
Good call on having a savings account totally separate from your checking. That’s also one of the benefits of 401ks and IRAs because it’s much harder to raid that account just because it’s convenience!
Automatic monthly transfers have been the bedrock of my savings. I do keep a budget as well, but I know that as long as I don’t touch those savings that I’m getting ahead. And if I find I have a little more than I usually do at the end of the month, I just funnel it into the savings account.
Pay yourself first! It’s amazing how effective automation works when it comes to money!