Lesson learned: Why you need savings

[jamethiel]

I haven't been updating the community, but a lot has been happening in my life.

We've had a few new people join. First of all, hi! Come and introduce yourself--tell us anything about your financial situation or goals you'd be comfortable with hearing and feel free to ask questions and make use of the community brain. I'm jame, your friendly community mod.

In my 20s, I got a credit card. Of course, I swore that I'd never use it except when I actually had the money, but gradually that changed--I was running short before the next week, so I'd just do one lot of shopping and put it on the card, which meant it had to be coming from the next week's pay, etc. Gradually my debt built up.

Eventually, I went through some major life changes. In the process, I learned to live within a budget and finally I paid my debt off.

Except then I had to move. And I didn't have savings.

BACK IN DEBT I WENT. And it just kind of hovered there for the next couple of years--I'd get it down and then something would happen and it'd go back up again. So I sat down and looked at my budget and then a light dawned.

All the time, I'd been living on the edge. It was funny because I'd never really adjusted to the fact that I wasn't in my 20s, I was making a decent wage. I just--spent everything I got, or put it on the credit card.

Get Rich Slowly has the precept that BEFORE you start paying down debt, you need a buffer of savings. Previously, I'd waived the idea off. This time, I actually sat down and saw the reasons behind it.

I got all of my bills for the year (including the big once-yearly bills, like insurance and car registration), averaged them to a fortnightly amount. I rounded up, added all of the amounts together, rounded up again, added what I call a "DEAR GOD!" factor of 10% and then added $20 on top. I set up a regular debit so that that money was taken from my bank account and into my savings on the day I got my paycheque. I said to myself "I will not touch this money for anything other than bills."

And it worked. I was no longer taking from my paycheque to pay bills and worried when I got the quarterly gas bill. When I got a bill, the first thing I did was go into my savings account, set up the exact amount of the bill to transfer to my bank account 2 days before, then schedule my bank account to pay the bill the day it was due. Gradually, my "savings" built up.

In addition to that, the fact that I transferred over slightly half my rent out each fortnight finally caught up with me. The best advice I can say is if your pay period is less than your payments due, COUNT YOUR BLESSINGS! There are extra fortnights in the year and so gradually, with just leaving the money alone, I ended up with an entire month's rent spare.

And then stuff happened. Work made the announcement, bless their little cotton socks, that they were switching to monthly pay. Giving us a month's notice.

... yeah. :| was pretty much my face at the announcement too. Co-workers threw justified fits. However, although I'm still indignant that they would do this to us with so little care for how people would manage, I'm actually going to be able to manage ok. Yes, things will be tight. But I think I've got enough savings to see me through. It may be tight and it uses enough of my safety net to leave me feeling actively uncomfortable. But I can do it.

The other thing I can do? Pay off my credit cards in full this month. On Friday, to be exact. Meaning I will be completely out of debt for the first time in... oh, three years.

Lesson learned, universe. This is why you need savings.

Comments

[vass]

\o/ Good for you! Savings are great.

As of today, I am one fortnight's savings away from having built my emergency fund to the level I feel comfortable with. This week my parents (who are my landlords) told me they needed to raise the rent, and I was sufficiently on top of my budget that I knew I could cope. This stuff works.

[jamethiel]

That's fantastic! Isn't it the best feeling?

[rivenwanderer]

Thanks for the perspective on this. I've been putting equal amounts of money toward the credit card balance and my savings each paycheck, and the amount in savings is finally greater than the remaining credit card debt. It's tempting to shovel it all into being "debt free!!!!", but I think I'll keep doing what I've been doing instead. Better to have non-credit-card emergency reserves.

[jamethiel]

Saving money without a "purpose" is one of the hardest things for me to do psychologically. Which is why calling it "bills" works for me--I only take money out for bills even though I've got a little bit above and beyond that. I've found that having a separate bucket for "savings" helpful.

And oh god, I am SO THANKFUL that I had that extra month's rent spare. It's really hard to see why you should save until stuff like this happens.

(Confession--I am going to dip into my savings a bit to be "debt free" at the end of this week, but that's just because interest on the card starts being applied from the 28th and it's going to take friends a bit longer than that to pay me back for tickets. All in, I'll only use about $100 of savings)

Good luck with both savings and paying down debt! Let us know how it goes!

[ngakmafaery]

....good for you: credit-card-debt-free with a pile o' cash, however tiny, is a good place to be, and can get better...I get paid weekly, but after I got electrocuted, I would space out and waste money if I cashed the checks, so I have found that often it makes more sense for me to save two or three checks uncashed and then put them in the bank in time for the mortgage and other bills...I think everyone has to work out what works for them...

[jamethiel]

Oh, absolutely, most money management is psychological. I've found that I have to arrange for direct debits to take the money out of my bank account before I get a chance to spend it. For me, having an internet based savings account is a blessing--having to wait a business day for the money to come through mostly makes me think "Do I REALLY need this?" and quite often stops me spending it.

[devilc]

Go you for getting a handle on things this way!

[jamethiel]

:D Thank you!

[red_trillium]

We've cleared our debt with my wife's redundancy. We used some of it to take my first trip home in 7 years but I've paid most of that off (it wasn't much and I've paid most of it off, with the rest ready to be paid in a week or so).

I do worry that we're still not quite living in our budget completely, still trying to get used to one income, but we are doing better than we used to. Now to work on cutting more costs (at a time we've just had an increase in rent and a request for more bond) so we can at least keep the savings even, then start building it up instead of spending it down.

[xoxomarina]

I agree saving is KEY. However, much to my misfortune, any time I save up any amount of money ($500, $1,000, last time I had saved up $5,000 and couldn't use it for myself!), something ALWAYS comes up. Like, oh my tuition is due in full, or oh six months' worth of car insurance is due today, or oh crap, my parents desperately need help to pay their rent. This and that. Always. I can never KEEP the money I save, let alone spend it on myself!! SO frustrating.

I'm so poor right now, but even so, I purposely have my ING checking debit $30 every two weeks out of my paycheck and I transfer $25 of that into savings automatically. I don't even have to think about it. But regardless, everything that's in my savings is going to tuition in a couple of months, so it doesn't even matter! lol :(

Congrats on being debt-free!! I plan to do everything in my power to stay that way myself (aside from $8k currently in student loans, but it's deferred). I pay my cc in full every month and I pay my car on time every time. It's a relief to be on top of things and in financial control. :) Many people make the mistake of letting money and expenses control them!

[jamethiel]

Ergh. The Parents thing is hard. However, the car insurance and tuition--are these not regular expenses that you know when they'll be due and approximately how much they are?

(It used to happen to me too, until I actually WROTE DOWN all the ones I could think of and the amount and the month it was due. And I added those yearly expenses into my "total bills for the year" so that when I worked out the amount to take out of my pay, those bills are budgeted for. "savings" is on top of this. Unfortunately, this kind of depends on having an income that is more than your outgoings)

It's great that you're not going in to debt. I actively feel a mean sort of joy when I pay my credit card on time-- "No interest for you, Credit card company!"