Getting back on the money management thing

[jamethiel]

Hi guys. It's been a while since you heard from me, huh? I thought I'd give you a quick update.

I am still in debt. Ugh, yes, I know. There was christmas, and just... I don't know.

BUT. I did this once before, I can do it again. The key for me, I think, is tracking my finances. If I spend five minutes a day updating my budget spreadsheet, I know where I am financially and what I can spend (I genuinely do live pretty frugally, but I honestly believe that allowing yourself little indulgences saves you from snapping and spending money you don't have. Far better to allow yourself a DVD once a month/fortnight than go insane and buy Everything Ever).

I have good news on the credit card front. One credit card will be wiped out in a month, and the other is below $1000. Financially, it makes more sense to pay down the one that is just under $1000--the interest is $17 a month or so. There are two reasons I'm not doing this.
1. I need the psychological boost from wiping out one credit card.
2. I got the second credit card on a balance transfer, and that deal ends in two months time. After that the interest goes up.
3. I'm paying well over the minimum on the $1000 credit card. It's just not as much as I pay on the Balance transfer credit card, and once I wipe that out, I should be able to turn ALL of my financial resources to wiping out that debt. Assuming I don't have any horrendous unexpected expenses, that debt should be gone in a month and a half once I get rid of the first card.

After that, I'm sort of faced with the question of "Well, where do I go from here?" I've never been successful at saving. So I thought about it. The first thing that comes to mind is goal-setting.

OK, I can do that. I know what I want.
1. Three months savings of all living expenses
2. A car service (probably be $1000, but save up $2000 just in case)
3. A new computer. Unfortunately, this is probably getting increasingly urgent. I want a Mac, but may have to take what I can get with what I have saved. Worst case scenario, I may need to either put it on my credit card or get a loan. Ugh. it's a necessity for me.

I think Savings can be divided into two categories. There is "Living savings" (bills, etc), and then there is "saving towards a goal".

The ONE thing that has worked for me is Automatic debits. I get paid fortnightly, and my rent comes out monthly. Now, I have a little bit above half the rent amount automatically taken out of my bank account and put into my savings account fortnightly. The rent itself is deposited automatically back into my bank account monthly, in time for it to be taken out.

I don't touch this bank account. At all, ever. Because I deposit the rent money into it regularly, and a month is slightly longer than a fortnight, I actually have more than half of my monthly rent sitting there as a buffer. If I let it sit there, doing its thing, I will actually have a buffer of an entire month's rent by the end of April.

This got me thinking. I've proven I can do the "put money on a bank account and not touch it." I've been living in my current place for a couple of years. I have a pretty good idea of what the bills are going to be.

I'm going to try a new approach. I'm going to work out what my bills are for a year. Then I'm going to divide that by 26. I'll add a fudge factor, to allow for bigger bills than expected/price rises, and a small amount of extra money besides. Then I will put that into an account labelled "bills". The only time I will touch that account is when I have a bill, and then I will schedule the transfer to my bank account for the day before the bill is due, for the exact amount, schedule the payment from my bank account and forget about it. Eventually, it will do what my rent does--build up over and above what my projected expenses are, and gradually accumulate a buffer.

I'm not quite sure how to get over the psychological hurdle of saving towards a goal. I guess I can start with budgeted amounts and then see what happens. I'm not entirely sure how to get over the thing of looking at my savings and going "Oooh! I have money!" and spending it. Anyone got any ideas?

Comments

[beatrice_otter]

Sorry, can't help you with the psychological hurdle--I tend to be the exact opposite, so saving is pretty easy for me.

This may be because my parents trained me to save from a young age. When I was a child, I worked for a small wage in my parents business, taking out the trash and so on, graduating to bigger responsibilities as I aged. I also got a small allowance. Every month, I got a paycheck, which got deposited in my savings account. I had to take 10% out to put in the offering at church. I could spend 10% of it on anything I pleased. The rest went in the savings account. I got to decide what it was spent on, but it had to be something big, something worth saving for. So I learned to save.

Think of your willpower like a muscle. It needs to be exercised and trained in order to work best. And when you're starting to exercise, you don't start huge right away. You start small, and through practice and repetition, eventually you can reach your goal. You can train yourself to do it--you're already well on your way! I salute you for the discipline you already have. You just need to keep up the good work.

I dunno. If you're saving up for something, maybe printing out a picture of it and putting it on the wall where you can see it? If you're saving for the buffer in case something happens, hm. Don't look at the balance of the account very often?

And I totally agree with the need to have small discretionary spending to keep you from blowing everything on the big stuff. That's the way it is for me. If I have the little stuff, it's easier to keep on track saving up for the big stuff.

Wish I could help more.

[jamethiel]

Right. My parents never taught me any of that, so I guess learning at an adult is different.

The thing is, starting small ($100 a fortnight socked away into another account) hasn't worked because I tend to notice it. I think if I can subdivide more, and separate out bills from savings, that'll help. I'll use your idea of a picture, though--that's a good one.

[highlyeccentric]

Can you trick yourself, like you do with the bills? Eg: reward for saving $750 is to buy something worth $500. Then that $250 is the starter for, say, a $1000 project, but you can't buy it until you have $1500 in the bank. If you can trick yourself like that, rewarding yourself not just for saving the cost of the item but for saving full stop, you'll be able to save for bigger and bigger things.

[jamethiel]

I think having specific things will start to work. The computer is starting to get urgent :( And while my car is working fine NOW, it's quite possible that without a service, it won't be working fine :(

[beatrice_otter]

Wish I could be more help.

[highlyeccentric]

As you may or may not be able to see from my journal (I'm not actually sure which filters I have you on), I'm pretty damn good on the savings front right now, and always have been.

One thing that's been working really well for me since I moved out of home is having my money not only in an account that's not attached to my debit card, it's having my savings - in an entirely different bank -. Currently I've got most of my money in an ING Direct account, whence it can be moved into an Orange Everyday and from there into my everyday account. My everyday account has its own high-interest savings account, which I use for saving up for bills, in the manner you describe - that tends to cover bills, personal splurges, gifts, haircuts, etc. Mostly I never even look at my ING savings maximiser, unless I'm budgeting for going overseas.

Out of sight, out of mind, I guess.

[highlyeccentric]

The other oft-quoted advice is to use cash for as much as you can. You still have to resist picking up your debit card (something I'm not the greatest at!), but in principle, if you set a number of things you can pay for on your debit card (for me, that's groceries, haircuts, mobile phone credit), and withdraw cash for 'pocket money', you can actually see your money for the week and handle it more carefully.

I'm not brilliant at that at the moment, because my everyday account always has a buffer in it. But if it's a skill you can master it's fantastically useful.

[jamethiel]

Yeah, I already do that. I don't leave money in my account, I do my sums before payday, work out how much cash I'll need and take it out and the rest gets transferred to savings so that I never see it. Then I transfer money back (i.e., food, petrol. I shop weekly, but get paid fortnightly. I take the money out for one weekly shop and transfer the next week's into my savings account. By the time it's cleared, I can transfer it back again and use it, and it's been earning interest all that time.)

it works pretty well. I think I need more buckets, though, so I'm not borrowing from Peter to pay Paul.

[jamethiel]

I have mine in UBank, which has higher interest at the moment than ING. I have multiple accounts, and somehow I've managed not to touch my rent account other than to adjust the dates of the debits if a weekend interferes with getting the money cleared and in my account before the weekend. But I dump an arbitrary amount into my bills/savings account and while I've never had any trouble meeting bills, there never seems to be much accumulation of money in there. I think I need to calculate my amounts more finely, call it "Bills" and not "Savings and stop touching it other than to transfer money for BPAY.

i do have an unused savings account with BankWest. Which has a higher interest rate still (although you lose the interest if you make a withdrawal). The loss of interest doesn't make it suitable for bills, as there's a fair bit of movement in and out of that account, but if I can set it up for a regular transfer, I'll have the amount for my car service saved in two months... And I'll be contributing to my laptop fund as well. Only a couple of hundred dollars, but still!

[highlyeccentric]

Yeah, that's what I would be doing if I were in your shoes, I think. If i had that much money, which, ahaha, I do not.

[all_adream]

If the idea of looking at your savings leads you to think "hey! spendable loot!" then either don't look at it (which could lead to not catching mistakes in bank balance paperwork though, or not understanding if you saved too little for your goal), or do a variation on the envelope system, where you put the amount for the rent in one envelope, the groceries in another, the credit card in another, etc. I stash money in different places, including savings accounts and hidden jars or whatever, for different purposes. That is pretty much the only thing that works for me too, since if I have something like fifty bucks here and two hundred there etc. it seems like amounts that are too small for me to rob from myself, as opposed to if I put every dime I had, including for serious stuff like rent and saving for a house downpayment, into a big pile or account--that would look like, "Plenty here--why don't I just...?" Good luck!

[jamethiel]

See, the thing is, I actually look at my rent account. But I just... don't touch it. So I made a step last night. I added up ALL of my bills for the year, padded a bit, calculated the fortnightly amount, rounded up. And looked at the total and went "OH THAT'S WHY I HAVE TO TAKE MONEY OUT OF MY PAY TO COVER BILLS".

:(

So I renamed my existing account "Bills", opened another account called "Living expenses". I've set up a direct debit to take the money out for bills and I don't touch that account except for actual bills. I think the key is separating out my living expenses, which I tend to transfer back as needed, so it's in a seperate bucket and I'm not tempted to take that 20 because I totes need to go out for hot chocolate. If I want it, I can take that money out of my food or petrol budget.

I'll let you know if it works!

[red_trillium]

I think paying off the lower card is a needed psychological boost. You've been working at this for awhile & need some encouragement after the Christmas spend.

Setting separate bill money aside from regular savings is a good idea. It's easy to get into spending and go overboard. If you have separate accounts you can 'lock' the bill money away from temptation. Putting a little extra in will be good too, that way you can keep extra for an unexpected bill and it won't set you back too far.

Good luck with saving for the computer too!

[jamethiel]

Thanks! I actually think the "bills" account will work, once I get beyond the first few transfers!