When I am visiting with people about types of savings, they often ask if there is an easier way to save for purchases than just having one place you put all your extra money. When I get this question, my heart jumps and my face lights up because I know they are looking for a way to reduce their money stress and provide for themselves and family in a real and tangible way!
There is a simpler way to save money! The hard part is the commitment to it. Often our commitment to savings money is what gets in our way of the financial freedom, vacations, and planning for the future.
There are 3 basic steps when setting up a plan for savings:
- Step One: Set up three savings accounts, and it’s okay if they’re all at the same credit union. I even have them on the same account but with three different suffixes. (This way they are all in one place – easy for me to see and manage.)
- Step Two: Set up an automated deposit into each of the three savings accounts with each of your paychecks.
- Step Three: Leave it there for the purpose in which you created the account (do not touch it)!
Now let’s break down those three steps to make it even simpler!
Three Types of Savings Accounts
The three savings accounts everyone should have are an emergency, vacation, and retirement account. I encourage you to set those up with your credit union and name them clearly.
As for your retirement account, if you can contribute to your company’s 401K, that is the best place for your retirement account. If you do not have access to a 401K, then I suggest you work with a Financial Advisor that can set up an IRA for you. (We have one here at the credit union and he is great!)
Set up automated deposits
The easiest way for you to make sure money goes into each of these savings accounts from your checking account is an automatic transfer attached to your paycheck.
Ask the credit union to set up a transfer from your checking account into each of your savings accounts. They can set it up in a way that these transfers happen automatically upon receiving your paycheck.
When asked how much to set aside, if you are just now starting, I suggest starting small in order to teach yourself to live on the rest. Start with $10.00 a paycheck into both your emergency and your vacation funds. Once you have learned how to live on less, increase that amount.
As a financial counselor, I always suggest you save 10% and give 10%, leaving you 80% to live on. If 10% is too much in the beginning, start small and work your way up. Each quarter, increase your amount. Or with every raise you earn, increase your amount by the raise you received.
Leave it alone
That final step – leave it alone! This can sometimes be the hardest part. You see the money there and “something comes up.” If you really want to save for that “emergency” or “vacation,” then do not touch it.
Ask your spouse or a friend to hold you accountable. Tell them you would like to use them as an accountability partner and if you want the money you have to come to them and present a case for why you should be able to use it for something other than its intended purpose.
One final tip: Once you have these three accounts growing, add one more called “Wish Account.” This account is for you to save for that “thing” you want. This is a way to keep yourself from spending your live-on money on something you just want, while still allowing you to get something extra every once in a while.
If you want to visit with a Financial Counselor or our Financial Advisor, just give us a call at 903-597-7291 and we will be happy to set up an appointment. We’d love to help you do more financially just like Skyla.
This financial guidance on three types of savings everyone should have comes from our CEO, Michelle Small.
