Yesterday, we talked about the value of properly assessing one’s frugal savings. The question then becomes what we should do with it.
When I first started my financial turnaround, there were a few months where I was amazed at the amount of money left in my checking account at the end of the month.
Not three months before, I would find myself with a few bucks left in checking before my paycheck arrived. Now, I would see hundreds of dollars left in there at the end of the month, and the total was growing. I was making extra debt payments and still building up my financial reserve.
The problem then became temptation. Since I knew I had money just sitting there in my checking account, it started to become easier to talk myself into spending money that I really shouldn’t have spent. I started to slip into bad spending habits again.
Luckily, I caught myself before bad patterns completely reappeared. I knew I needed a different approach, and automatic saving was that approach.
What I did was really simple. I simply set up an automatic transfer from my checking account to my savings account that would drain away the excess each pay period.
After paying careful attention to how my money was building up, I realized I was spending about $200 to $300 less per pay period than I was bringing in. So, I set up an automatic transfer for $200 per pay period to go straight into a savings account.
I set up my savings at a different bank entirely – I used ING Direct. Why? If I kept the money at the same bank, it was quite easy to just access that cash at any ATM. The whole point of doing this was to put the cash somewhere else, out of sight and out of mind, so I could make careful, rational decisions with it.
Eventually, that saved money helped me smash through remaining debts and eventually made the move to our current home possible. More importantly, the automatic transfer kept me from spending it on foolish things.
Automatic transfers are still a vital part of how I manage my money. I sock away money automatically for Christmas gifts, for our next car purchase, and for our emergency fund. These all go into separate savings accounts which I tap at the appropriate time.
Automatic transfers simultaneously protect you from lapsing back into poor financial choices while also enabling you to plan ahead for the events in your future. That way, you’re not sacrificing a wonderful Christmas for your family due to your own questionable spending habits, and your frugal choices are not going to waste.
This post is part of a yearlong series called “365 Ways to Live Cheap (Revisited),” in which I’m revisiting the entries from my book “365 Ways to Live Cheap,” which is available at Amazon and at bookstores everywhere. Images courtesy of Brittany Lynne Photography, the proprietor of which is my “photography intern” for this project.