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As I dug myself out from under a heap of credit card debt, I realized that I was forgetting one major aspect of financial freedom. My savings account was being neglected. My main focus was to pay down the credit cards, one by one, and then focus on building my savings to a respectable level. We all know how important it is to have a fully funded emergency savings account, but I wasn’t following my own advice. Once I paid off my last credit card, I looked for answers to build up the account that I had torn down.
I have always had a savings account at a large bank along with my checking accounts. As the interest rates fell through the floor and I was earning a meaningless 0.10%, I decided to put my money into a credit union. I opened up two new accounts, a checking and savings, and started funding them with any extra funds.
Every time I received my paycheck, I would handle my regular bills and miscellaneous expenses. After that, and only after that, I would fund my savings account. Each month was different, where some months I would add more than others. There was no consistency, no will power. I needed to find a better way. Then I decided to treat my savings account a little differently.
Changing the way I think about saving
People tend to worry about their expenses, and then figure out if they can “afford” to fund their savings account. I was doing the exact same thing. I have always had my monthly bills written on a whiteboard in my office, so I can keep track of new or recurring bills. This has been my method for years. One day, I was adding another bill to the board and it hit me. I needed to start treating my savings account like another monthly bill.
Time to add another bill
We all hate paying bills, but we continue to do so. We have signed contracts with providers that require us to pay them for a service. I realized that I needed to come up with a contract for myself. Why not fund my savings account in the exact same way that I would pay a monthly bill? All I needed to do was figure out how much I could afford each month without the miscellaneous expenses and then transfer the money into the account. Here comes the internet to the rescue.
Thank you technology
With the expanse of online banking, it made this process even easier for me. With my monthly “fund” figure, I decided to automatically transfer payments twice a month, as dictated by my pay schedule. This would put money into my account without me even lifting a finger and then “hiding” that money, so I didn’t have the desire to spend it.
Ever since I started treating my savings account like a monthly bill, I have surpassed my emergency fund goal and am working on hitting my “6 months of expenses” goal. The best part is, if I ever need the money, I have easy access to it. By switching my mindset, I have taken something that involves some emotion and made it mathematical. If I don’t have to see it, then I won’t have the ability to waste the money on unnecessary purchases. I know exactly how much my savings will have in it in 3 months, 6 months, and beyond. I have taken back control of my savings account.
How do you save money? Have you thought about treating your savings account like a monthly bill?
Author Bio: Grayson is the owner of Debt Roundup, a personal finance blog dedicated to helping everyone get out of debt. Grayson dug himself out of $50,000 worth of credit card debt and has started to gain positive net worth. Check him out at Debt Roundup.
Thanks for allowing me to post Jeremy. I really appreciate it and I hope you are enjoying your vacation!
Grayson @ Debt RoundUp recently posted..The Day My Personal and Financial Life Changed
Great article Grayson. I guess I’ve never really thought of it like that though. One thing I do is save everything above a certain dollar amount on my weekly check. In my case anything above $500 goes towards bills but if I earned $600 that week a $100 will go towards my saving thus paying myself first.
That is a good way to do it, but I needed a way to get serious about saving. I never miss paying a bill and I never wanted to miss paying myself, so that is why I treat it like a bill.
Grayson @ Debt RoundUp recently posted..The Day My Personal and Financial Life Changed
Awesome post Grayson! I could not agree more. We started doing this years ago and haven’t looked back. We view is as paying ourselves first and the beauty of doing it electronically each month is that we don’t even “feel” it.
John S @ Frugal Rules recently posted..Three Ways Advertising Companies Tempt You to Forsake Frugality
So true John. While I am not technically “paying myself first”, I am making it automatic and painless. Some take money right out of their paycheck when they get it, but I just have it drafted at a certain time per month. It is still technically paying myself, but maybe not first!
Grayson @ Debt RoundUp recently posted..The Day My Personal and Financial Life Changed
If you “pay yourself first” it makes perfect sense to think of yourself as a bill. Great to see that you were able to get into a routine where you have some continuity Grayson.
What I try to tell people is to check with their company (if they are employed) to see how many direct deposits they can have. This way, not only can the net check be deposited electronically, but payments to a savings and retirement account can be automated as well. And we all know that it can be easier that way for some people since they won’t see those funds going into their account, and therefore won’t “miss it” .
Eric J. Nisall – DollarVersity recently posted..TurboTax Reviewed From an Accountant’s View
Great point Eric. I did look for that route, but since I already had money going to my personal checking account, my joint checking account, and my 401k, I was out of direct deposit accounts. If you have the option, I would take that as well!
Grayson @ Debt RoundUp recently posted..The Day My Personal and Financial Life Changed
I totally agree with you and do this myself. By auto transferring my money into savings like a bill I am not tempted to spend it. It makes saving for targeted goals and saving for retirement sloop much easier!
Lance at Money Life and More recently posted..What Did I Do With My Raise in 2013?
Right with you Lance. It doesn’t hurt as much when you automate it. It also makes it consistent and that is how you achieve goals!
Grayson @ Debt RoundUp recently posted..The Day My Personal and Financial Life Changed
It’s true that paying yourself first leads to making the most progress on your savings. It’s also insurance for those unexpected things that come up.
Jerry recently posted..Is Indexed Universal Life the Most Over-Hyped Policy Ever Created?
So true Jerry. Usually when you have “insurance” the unexpected emergencies won’t happen as much.
Grayson @ Debt RoundUp recently posted..The Day My Personal and Financial Life Changed
I have always used this approach. From the time that I graduated college and started my IRA I have always automatically paid into it twice per month. I think of it as a bill that needs to be paid so I just make it automatic.
Sean @ One Smart Dollar recently posted..Who Needs Umbrella Insurance?
Nice work Sean. It is the only way to keep yourself from spending it!
Grayson @ Debt RoundUp recently posted..The Day My Personal and Financial Life Changed
Good stuff! “Pay yourself first” explained. Cha-ching!
AverageJoe recently posted..Expected Family Contribution: Digging For (and Finding!) Financial Aid
Thanks Joe. I am glad I could shed some light onto the “pay yourself first” subject.
Grayson @ Debt RoundUp recently posted..The Day My Personal and Financial Life Changed
I think this is a great plan, and I do it myself. Each month I transfer x dollars into my savings, which then gets pushed out to the broker every couple of months. I don’t fund savings explicitly anymore, but making sure to pay yourself first (whether investing, emergency fund, etc.) certainly helps make sure that you’re not shorting the future you.
CultOfMoney recently posted..Final Carnival of Financial Planning for 2012
I completely agree. I just started automating my money to my Roth account since my 401K is already taken out when my paycheck is cut.
Grayson @ Debt RoundUp recently posted..The Day My Personal and Financial Life Changed
My banks require automatic transfers of at least $25 into the savings accounts to keep them free. I’m not too the point yet where I can actually keep that money there, but I treat it like a bill on my budget.
Edward Antrobus recently posted..How to Avoid DirecTV moving fees
Yeah, I hate when banks do that. Just another fee and yet they give you almost nothing in return (low interest rates).
Grayson @ Debt RoundUp recently posted..The Day My Personal and Financial Life Changed
Love this—it’s what I do with my savings as well! It’s a line item in my Excel budget that has to be paid each month just like the mortgage.
The Happy Homeowner recently posted..Yes, My Boyfriend is Paying Me Rent
We all hate bills, yet we continue to pay them. It is a great motivator.
Grayson @ Debt RoundUp recently posted..The Day My Personal and Financial Life Changed
I started doing that about a year ago and it is a great plan. You build up that savings in no time it seems. If you wait until the end of the month, you are very likely to spend it on something else.
KIm@Eyesonthedollar recently posted..Improve Your Attitude: Turn Negatives Into Positives
Agreed. Mine is actually taken out in the middle of the month based on my bill cycles. I like to spread out my bills as much as I am allowed in order to keep good cash flow throughout the month.
Grayson @ Debt RoundUp recently posted..The Day My Personal and Financial Life Changed
That is a GREAT IDEA! Just pretend like your savings accoutn is another bill, another greedy company. BUt the great part about it is that over time, you’ll remember that it’s NOT another greedy company, it’s your own money gtting built up for you! Awesome post, dude.
TB at BlueCollarWorkman recently posted..What It Means To Know Someone Personally
Thanks TB! Yeah, as long as you don’t get pissed at your own money, then you should be good. It would be a nice surprise if you forgot that you were saving it.
Grayson @ Debt RoundUp recently posted..The Day My Personal and Financial Life Changed
I love the idea of treating your savings account like a monthly bill, but personally for me I don’t need that kind of psychological approach. Unless a disaster happens, we’ll always have money left at the end of each month because of the way we budget, and that simply gets put towards our financial goal at that time (savings, debt, etc.).
For most though, I think it’s pretty brilliant if they can really trick themselves into thinking it’s a bill.
Jason @ WorkSaveLive recently posted..How to Get Your Family On Board When Paying Off Debt
If only we all learned this one principle early in our working careers, we would have better habits and much more in savings. I have an automatic debit going to my savings once per month for an amount that is not huge, but that is motivating as I see it pile up.
Suzanne recently posted..39 Financial Advisor Marketing Ideas That Rock
At least you have a monthly transfer setup, so you can live without that money. If you have an emergency, at least you can access it. It is better than giving that money to a credit card company.
Grayson @ Debt RoundUp recently posted..Does the European Union Still Have a Purpose in Today’s Falling Economy?
That is good to be able to have that much left over. I am a planner and though I have a budget, I never know what will happen each month. I can’t plan for life’s little twists in the road. That is why I treat my savings like a monthly bill.
Grayson @ Debt RoundUp recently posted..The Day My Personal and Financial Life Changed
Great way to put it! Even after I decided to put most of my money into investments, the regular savings account transfer kept kicking and I really don’t notice it. It is nice to see what adds up there after a few months.
Pauline recently posted..13 money resolutions for 2013: #7 Make more money!
It can be a great surprise depending on how much you transfer each month.
Grayson @ Debt Roundup recently posted..The Day My Personal and Financial Life Changed
What a great way to look at it. Saving money is just as important as paying your bills so why not look at it the same way. I am going to have my husband read this too sense he is the one who pays bills in our home. I bet he will enjoy this as well. Thanks for the great advice.
Tanya recently posted..Making a Fresh Start in the New Year
I am glad you enjoyed the article Tanya. If you have the ability to pay your bills, then just make the rest of your disposable income a monthly “bill” and your savings account will blossom.
Grayson @ Debt RoundUp recently posted..Does the European Union Still Have a Purpose in Today’s Falling Economy?
I have a friend who’s always telling me he has no money, when I know full well he has thousands in savings. It’s not that he’s trying to deceive, it’s just that as you say he treats his savings account as a bill, untouchable and non-negotiable. Every month he adds more to it and he’s unwilling to touch it unless it’s an emergency or an investment. Great post!
Money Bulldog recently posted..Making Money Online ~ HubPages
I do that as well. Never trying to be rude to anyone that actually knows my financial situation, but I don’t want to use the mindset that I can just tap into when I want.
Grayson @ Debt Roundup recently posted..The Day My Personal and Financial Life Changed
Treating your savings account as a monthly bill is something I’ve been teaching to others. It’s not another way to pay yourself first. I’ve included this in my speaking engagement. Make your saving contributions part of your “fixed expenses.”
Ornella @ Moneylicious recently posted..Women Only: An Interview with Kelly Hoey of Women Innovate Mobile
Good to hear others teaching this principle.
Grayson @ Debt Roundup recently posted..The Day My Personal and Financial Life Changed
Good post. Buying silver and gold coins are a good way to “cash out” of the market and save without as much risk as paper. Plus you can be confident you’ll get a respectable return since savings accounts pay diddly.
Darnell Jackson recently posted..3 ways your blog can exploit the 2013 Oscar Nominations
Setting up the savings deposit to be transferred automatically on a regular basis is great way to build a savings account. Eventually you don’t even miss the money and you become so conditioned to saving that you don’t even consider the money available to spend. It just keeps on accumulating.
Patti recently posted..Easy Savings Plan for The New Year
I have gotten to that point. It is nice to go and log in to my account every once and a while to see what is going on. I always like to see more money!
Grayson @ Debt RoundUp recently posted..Does the European Union Still Have a Purpose in Today’s Falling Economy?
Ahh! Pay yourself first! Now it makes a bit more sense to me. I’ve always found it hard to save for exactly the same reasons, thanks for the tip, think I’m going to use this.
I might take on Darnell’s idea as well…
Good luck and I hope it works for you.
Grayson @ Debt RoundUp recently posted..Does the European Union Still Have a Purpose in Today’s Falling Economy?
Totally the best way to look at savings. Especially, if you’ve been paying credit card bills anyway. It’s money that you’ve been getting by without anyway, so why not bung it in a savings account. I made the mistake a few years ago when I stopped paying off a debt and instead of saving he money I started spending it. Once you get used to that extra cash it’s really hard to go back again.
Jamie Dickinson @ YourSavingAngels recently posted..Make Money: The Post Christmas Haul Out
Very true. If you are already used to it being gone, then it should affect you by saving or investing it.
Grayson @ Debt RoundUp recently posted..Does the European Union Still Have a Purpose in Today’s Falling Economy?
Absolutely great! I was already doing (the transfer to my savings account), but it lacked the consistency and regularity. I just transfer what funds are available for savings and never on a regular date. I will now define a specific amount and treat this as a regular monthly bill. Thank you for this post.
CreditDonkey recently posted..Survey: Many Americans Optimistic about Retirement, Despite Lack of Planning and Saving
Awesome. I was the same way that you are, but once I put this transfer on my bill list, I made it work and consistently transferred the money.
Grayson @ Debt RoundUp recently posted..Does the European Union Still Have a Purpose in Today’s Falling Economy?
Treatingour savings like a monthly bill is the exact strategy that we employ. We just pay it (transfer money) like we pay every other bill that we have. It definitely works…expecially over a long amount of time. Before we started doing this, we would just spend our extra money!
Holly@ClubThrifty recently posted..Horrific Financial Advice from the New York Times
Same here. I would see an extra $100 and then go to the store to find the latest and greatest electronic item. I am glad I got control and now my savings account actually likes me.
Grayson @ Debt RoundUp recently posted..Does the European Union Still Have a Purpose in Today’s Falling Economy?
We really have to treat our personal savings like our monthly bill. This is an eye opener. It is not sufficient to pay credit card bills or we end up empty handed. Let us allot some amount for our savings account even if it is not so large.
Lakita recently posted..My Home Insurance – An exercise in futility
You have to start somewhere. Even if you save $10 a month, at least you are saving and getting in the habit. Once you pay off the credit card, then you can put that monthly payment into your savings account each and every month.
Grayson @ Debt RoundUp recently posted..Does the European Union Still Have a Purpose in Today’s Falling Economy?
This is a great approach, I couldn’t agree more.
Roger @ The Chicago Financial Planner recently posted..3 Financial Products to Consider Avoiding
Thanks Roger for stopping by and commenting. I appreciate it!
Grayson @ Debt RoundUp recently posted..Does the European Union Still Have a Purpose in Today’s Falling Economy?
That’s how I tend to approach savings as well. It’s just another item that has to get paid reach month. Otherwise, it’s too easy to find other ways of spending that money.
CF recently posted..Why savings matter in January
There are many ways I would spend the money I put into savings, but if I don’t see it, then I don’t spend it!
Grayson @ Debt RoundUp recently posted..Two Common Debt Reduction Options
Well said! You have to set “paying yourself” on automatic. If you never see it, you won’t miss it (or use it).
Thad recently posted..Playing to Your (Spouse’s) Strength
Thanks Thad, I appreciate your comment and glad you agree!
Grayson @ Debt Roundup recently posted..No Spending Challenge Giveaway
I grew up with “The Wealthy Barber” type parents who always talked about paying myself first. I didn’t truly put it in motion until about 10 years ago and since then it has developed into my most favorite habit! Although I started with pennies from my pay cheque I can proudly say I’ve been putting 10% of my take home into that account with every penny I take home. Goal is to increase this to 15% by the end of this year!
Julie recently posted..For All You Dog Lovers!
That is a great goal to have Julie. Even saving 10% of your paycheck is well above what the Average person saves. Good luck on getting to 15%!
Grayson @ Debt RoundUp recently posted..Overspending in America – The Sad Truth