Savings Archives - Faithful with a Few

7 Ways to Become a Saver – Even if You’ve Never Been One Before

If you’ve never been much of a saver in your life, you’re probably finding that your biggest problem is just getting out of the starting gate. That’s likely the reason why the majority of Americans don’t save money.

You get into lifestyle patterns – and not such good ones – that don’t include saving. The only way to get out of that trap is create new patterns that include saving. Once you do, you may find the process is easier to maintain than it is to start.

[Join the 52-week savings challenge to jump-start your savings!]

Here are seven ways to become a saver, even if you never been one before.

Learn To Live At Least A Little Below Your Means

Becoming a saver starts with the ability to live at least a little below your means. The basic idea is to earn say $1,000, live on $900, and have $100 available to put into the bank. Once you establish this pattern, saving becomes easy.

Getting to that point though, may not be so easy. You have to either increase your income (more on that later), lower your living expenses, or some combination of the two. It may be a struggle to get started, but it’s really the only way forward.

Ignore Your Credit Card Debt – For Now

Probably the second biggest reason people never become savers is because their financial attention is fixated on their credit card debt. They assume that there is no point in saving money as long as they have credit card bills. Though there’s some logic to this thinking, it’s hard for people to become savers when they’re focused on paying off credit card bills.

The key to the entire conundrum is the word “revolving” – which is the essence of what credit card debt is (the saying in the lending universe is once a visa, always a visa). You borrow money, you pay it back in increments, but as you do you might continue to borrow. That’s the revolving loan Catch-22. While you are trying to pay off your credit cards, you continue to tap them for emergencies primarily because you have no savings to fall back on.

Though it can sound counter-intuitive, if you want to become a saver, forget about your credit card debt at least for a little while. Get some savings put away first, and then worry about paying off your credit cards.

Stop Using Fresh Credit

When I suggest ignoring your credit card debt, I mean ignoring it completely. That means avoiding using it to incur fresh debt. If you’re not going to concentrate on paying off your credit cards, you absolutely must stop using them completely.

Bonus: If you don’t use your credit cards, you will eventually pay them off simply by making the minimum monthly payment, or something just a little bit higher. This is another reason why it’s more important to establish savings before concentrating on paying off your credit cards. Your credit card balances will fall – simply from not using them – while your savings increase. That’s killing two birds with one stone.

[Here are 20 money saving tips for low income earners!]

Use Payroll Deductions

If it’s difficult for you to take money out of your budget and put into savings, you’ll need a strategy that takes you out of the process. By setting up payroll deductions, and directing the money into a savings account, you remove the decision-making process from the flow. The money automatically goes from your paycheck to your savings account, with no further action on your part.

There’s a saying, “out of sight, out of mind”, and that’s what you establish when you use payroll deductions to fund savings. The whole process takes place without your even being aware of it.

You can do this with a relatively small amount of money too. For example, if you get paid biweekly, and you direct $100 out of each paycheck, after one year you will have $2,600 saved – without your ever much knowing it happened.

A lot of non-savers accumulate a lot of money this way. In fact, it’s the standard way that retirement funding works.

Bank Cash Windfalls

Banking cash windfalls is a way to fast forward the savings process, especially when this is done in combination with payroll deductions. While payroll deductions are building up your savings slowly, adding periodic windfalls moves you ahead much faster.

Plan to bank your next income tax refund check, any bonus checks you receive, or any other windfalls that come your way. This will require a shift in thinking. Many people see windfalls as an opportunity to spend money on a needed or desired purchase. Change that thinking to wanting to see your bank account get bigger. And it will – fast.

Create Extra Income Sources And Bank The Cash

Another way to fast-forward your savings efforts is to create extra income sources specifically for the purpose of saving money. This can be a part-time job, a casual situation (like tutoring or helping a friend with computer problems), taking on overtime work, or even starting your own side business.

This can also be at least part of the solution to developing the all-important ability to live beneath your means. If you find it difficult to cover your living expenses, increasing your income can provide extra cash that you need to fill your savings account.

Make Saving A Lifestyle

Once you have adopted some or all of the steps above, it will be important that you begin to make saving a lifestyle. Everyone is subject to the occasional spending binge, but that’s should never be the normal course in your life. That means that you will have to make saving money your default behavior.

By doing that, you will stack the long-term in your favor. You will first accumulate enough money to cover immediate needs, then enough to begin paying off your debt, and finally plenty of extra for long-term investing.

That’s a blueprint for financial independence! Are you ready to make that a lifestyle?

If You Can’t Be Rich, Work at Becoming Cash-Rich

By // by Kevin M

A lot of people are working very hard at becoming rich. Some will make it, but most won’t – at least statistically speaking. But you don’t have to be rich in order to be happy and successful in life. You can become cash-rich, and have all the same benefits.

What Is Cash-Rich, And How Is It Different From Regular Rich?

Cash-rich means having enough money to live your life, plus some extra for savings, investment and fun. It is determined purely by individual factors. For one person, that can mean making $25,000 per year. For another, it could mean making $250,000 per year. And since most of us can live on far less money than we think, the real number is probably a lot lower than we realize.

Regular rich is more objective. It’s usually measured in certain dollar figures, particularly as they relate to income and net worth. Perhaps the fact that it’s measurable is the reason so many people pursue it. Since it often has a specific number attached to it, it can be displayed almost like a trophy. That appeals to our humanity.

[Is it a sin to be rich?]

Why Cash Rich Can Be Just As Satisfying As Regular Rich

While regular rich can mean a lot of tangible evidence of your financial success, it often also comes with complications and more than a small amount of stress. It is not unusual for the regular rich to have less freedom and mobility than the merely cash-rich. There is high income and investment worth, but there is also a high living standard soaking up a lot of the extra money.

Being cash-rich can be just as satisfying. You may not have the tangible evidence of your financial success, but you’re largely free to come and go as you please. You live in a lifestyle that you can easily afford, you have extra money, and you can often do the things that you want to do in your life. In addition, you may find it much easier for you to change jobs or even residences, since these elements don’t define your life.

In the end, quality of life is the real objective we all seek. Regular rich often resembles a money chase. You reach a certain level of wealth or income, then immediately set new goals for each. You’re constantly striving for higher numbers. But if cash-rich is the goal, your primary objective is to avoid overextending yourself. For most of us, that’s a much more simple process.

Busting Your Hump To Be Rich When Cash Rich Will Do Just As Good

As glamorous as becoming regular rich may seem – and as much as our culture favors it – the effort itself comes with more than a few limitations:

Despite your best efforts, you may never become rich.
Worse, you may become rich and then lose it all.
You may become rich, but also lose your health, your family, or your friends in the process. Many people become so driven by the desire to get rich, that these can become common casualties of the effort.
You may not live long enough to enjoy your wealth.
“For what shall it profit a man, if he shall gain the whole world, and lose his own soul?” – Mark 8:36. I can’t say it any better.

Chasing regular rich is not a risk-free proposition.

Since it is much closer to the ground, becoming cash-rich is usually easier to attain. In fact, a number of Bible verses – especially in Proverbs – that tell us to do just that. Even more important, by being cash-rich you can enjoy many of the same quality of life benefits normally reserved for the regular rich. It won’t be anywhere near as opulent, but then we won’t be taking anything out of this world when we leave it anyway.

How To Become Cash Rich

Becoming cash-rich is usually much easier to achieve than becoming a regular rich. In fact, it’s well within reach of the average person of ordinary means.

Start by living beneath your means. Becoming cash-rich all starts with this concept. What ever it is that you make, you live on at least a little bit less. This not only forces you to keep your living expenses low, but it leaves extra money for the next two steps.

Become a saver. The money that you save from living beneath your means can go immediately into savings. Once you have several months worth of living expenses sitting safely in a bank account, your entire financial outlook will change. The financial stress will disappear, you’ll sleep better at night, you’ll think with more clarity, and you may even be able start investing your money to make more money. That’s the basic thing that regular rich people do, but you have to be cash-rich before you even begin to think about it.

[Take the 52-week savings challenge, in order to painlessly become a saver!]

Gradually pay off your debt. Once you have some money saved – and the financial strength that it brings – you can begin to gradually payoff your debt. As your debt payments begin to drop, you’ll have more control over your income, to save more and to do more.

There’s no need to invest 20 or 30 years in building a business or career, no requirement to build a seven-figure investment portfolio, and no necessity for a mansion or luxury car. You’ll have control over your income and your money, and that’s all you need to be cash-rich.

Are you ready to abandon the chase to become regular rich, and focus instead on becoming cash-rich?

Have a Budget Account – To Keep You From Raiding Your Emergency Fund

By // by Kevin M

Most of us are familiar with the concept of an emergency fund and why you need one. It is the most fundamental type of savings that you can have, because it is there to provide a cushion against sudden and unexpected financial issues.

Some people are never able to get an emergency fund going. As a result, they often don’t move on to achieve any level of financial independence because they are constantly faced with emergency situations and no funds to deal with them. Others establish emergency funds, but end up draining them for non-emergency purposes.

The best way to avoid that fate is to set up dual savings accounts – an emergency fund, and a budget account that will prevent you from raiding your emergency fund when it is not absolutely necessary.

Set Clear Definitions For An Emergency

The only way to have a successfully functioning emergency fund is if you set very specific definitions as to what constitutes an emergency, and you never dip into the account unless the crisis fits neatly within the definition.

Everyone’s concept of an emergency fund tends to be a little bit different, but I think that the key definitions are sudden and unexpected. Sudden, as in an event that seems to come out of nowhere. If it is something that you knew was coming, it does not fit within the definition of sudden, and is not a legitimate emergency.

“Unexpected” is another critical definition. If a financial event is truly unexpected, it means that you had no reason to prepare for it in advance. Anything that you do know beforehand should hardly constitute an emergency.

A job loss, for example, can qualify as an emergency because it is sudden and unexpected. Replacing all four tires on your car doesn’t fit either definition, because it is a maintenance item that you knew about long in advance.

An Emergency Fund Should Never Be A General Use Bank Account

An emergency fund should be an account that is special and set apart from the rest of your finances. If you are using your emergency fund simply to cover monthly budget shortfalls, that is not a true emergency fund. It is important to maintain that distinction, otherwise an emergency fund is simply not an emergency fund.

Your checking and savings accounts should represent your general use bank accounts. That means they are available to cover your normal budget, as well as any expected expenses. If there is an imbalance here – that is, an insufficient amount of money in these accounts to cover your expenses – then you have a structural financial problem. The problem could either be insufficient income, or excessive spending. An emergency fund will not fix either of those problems, nor should it be expected to.

Set Up A Budget Account To Handle Expected Expenses

One of the ways to avoid imbalances in your budget, is set up some sort of budget account. This should be an intermediate level account. It should be more accessible than your emergency fund, but less so than your checking and savings.

While your checking and savings should be available to meet your normal spending budget, and your emergency fund is held for true emergencies, a budget account can function as a halfway type of account.

You won’t use this to pay regular bills, but rather you’ll use it as a an account to pay for anticipated expenses. This will largely include maintenance costs and near-term spending priorities. Knowing these expenses are coming up, a budget account will enable you to put money aside in anticipation of meeting them.

Maintenance costs that you should be funding through your budget account can include:

Expected car repair expenses. If for example you expect to average $1,000 per year for car repairs bills, you should be putting away about $80-$90 per month to budget for this.
A roof replacement that’s expected in five years – if the cost will be $6,000, you might want to begin saving about $100 per month in anticipation. The 60 months between now and then will allow you to save the money you need.
Your refrigerator is ten years old, and it will cost $1,000 to replace; figuring it will last another two years, you may want to begin saving at least $40 per month ($1,000 divided by 24 months).

Near term spending priorities might include some of the following:

Saving up money for a family vacation. If you know that you’ll be spending around $3,000 for your vacation, you should be putting $250 into the account each month ($250 X 12 months = $3,000).
Holiday expenses. You can think of your budget account as being something like a Christmas club account – putting away a certain amount of money in anticipation of heavier expenses at the holidays.
Your eight year old looks like she may need braces in a few years – you can begin saving for this in your budget account.

Each of these expense types are fully expected, and therefore they are hardly emergencies. You can and should budget for them, and by having a budget account set up you can do just that. If you do it faithfully, you will not need to raid your emergency fund, nor drain your regular checking and savings accounts.

It seems a bit complicated, but can you see the merit of having dedicated accounts to cover different levels of expenses?

An Emergency Fund: The First Step to Financial Independence

By // by Kevin M

When we think of financial independence we often think about having a lot of money, of having a fully loaded retirement plan, a house that’s paid for and being able to spend money any way we want.

That may be financial independence on the high end, but you’ll never get there without taking a few less glamorous steps beforehand. One of those steps is creating an emergency savings fund. It will be the foundation of everything that comes afterwards.

Why An Emergency Savings Fund

You May Not Be Ready For Stocks, Bonds And ETFs – Yet

Talk about financial independence often focuses on investments. Where’s the market going? What are the hottest stocks? What winning ETF will get me to my investment goals? How much do I need to save for retirement?

That’s all good, but if you don’t have any of those activities going right now, you need to back up and do something more basic. You need an emergency savings fund. As boring as it sounds, an emergency fund does several things that will start you on the road to financial independence:

It gets you a basic savings balance
It proves that you can save money, which is critically important if you never have before
It provides a measure of insulation between you and financial desperation
It lays the foundation for greater savings—and investments—later
When you have investments, an emergency fund will keep you from having to liquidate those investments to pay current expenses or emergency situations

I think it’s safe to say that until you get the items above going, financial independence will never be much more than a dream.

Starting Off On The Wrong Foot

Financial resources have three main components in most households: income, savings and credit. Each of these can be used to pay obligations, but they aren’t all equally up to the task.

1. Income. This is the preferred resource to pay obligations, especially current ones. When your income meets your current obligations your household budget is under control and you’re ready to move on to better things.

2. Savings. In a perfect world, savings should be available to back up your income in the event that it isn’t enough to cover your immediate expenses. You’re in a good place if that doesn’t happen too frequently, but it’s there if you need it.

3. Credit. Credit should be used only for the purchase of major assets that will provide you with benefits for a long period of time. It’s a way to spread the expense of high cost items over a longer time frame. Houses, cars and a college education are the best examples, and even then only if they aren’t taken too far. Credit can also serve a secondary role as the back-up to your savings, in the event they won’t cover a large run of expenses.

Income and savings are the preferred financial resources, with credit as a need-to-use-only resource. The problem is that for many people, it’s not savings that backs up their income, but credit. This comes about because while savings take time, effort and sacrifice, credit comes about with the swipe of a card.

The need to save money is skipped entirely. That’s bad because having savings, and at least an emergency fund, has fantastic advantages…

An Emergency Savings Fund = ”Sleeping Money”

Have you ever lost some sleep, or even an entire night’s worth, worrying about paying your bills? More specifically, this is likely to happen when you really can’t pay your bills. This is what happens when your budget is stretched too tight, when there aren’t enough resources to meet obligations.

If nothing else, having just a few thousand dollars sitting in a savings account might bring you the blessed sleep that you need to live your life.

Debt Can’t Go Away Until You Stop Using It

An abundance of debt is usually accompanied by an absence of savings. Is there a connection? I think so.

When you have no savings, you’re forced to rely on credit to cover those income shortfalls. And when you’re constantly tapping your credit lines, you’re going deeper into debt.

Most people who are in debt would do just about anything to get out, but that can’t happen until you stop using credit. The only way to do that is to live on less than you make and be prepared to cover emergencies with your savings—a true emergency fund.

Being Ready For Trouble

When you have savings—at least an emergency fund—you’re ready for problems. It’s not that you want them to happen, but rather that you’re prepared if they do. Any trouble you face will be that much easier to deal with if you have a savings cushion to back you up. Savings give you options, and that can take the panic right out of a troubling event.

The more you have saved the more trouble you’re ready to deal with. But at a minimum, you should have an amount sufficient to cover predictable shortfalls, such as major car repairs, medical deductibles, or a job loss.

When you’re ready for these, life becomes more predictable, and that puts you in better control – it’s almost like having a self-funded insurance policy.

How To Get There

There are different ideas as to how much you should have in emergency fund, but I think the best is having at least an amount equal to 30 days of living expenses. If you have 30 days of expenses saved, you’ll have enough to cover the first month of a job loss, which will give your unemployment checks a chance to start showing up.

How do you reach that goal?

Start by selling anything you don’t need with a garage sale or on Craigslist, and banking the money.
Bank your bonus, your tax return or any gift money you receive.
Bank 10% of your net income for the next ten months, or use some other percentage strategy that will get you there. A temporary part-time job can help with this too.

Any difficulty you’ll encounter in building your emergency fund will be less than the trouble you’ll be getting out of by not having one. That’s the first step to financial independence. Everything else will flow from that.

Are You Preparing for the Next Recession?

By // by Kevin M

This is a bit of a depressing topic, isn’t it? After all, we’re in the middle of summer and it’s just about the peak of the high vacation season, right? Why try to throw cold water on everyone’s good times?

Three reasons:

The economy is already showing signs of slowing,
The presidential election will be over in three short months, and no matter who wins it’s anyone’s guess what will happen after that, or even
I’m a mean person who’s trying to rain on everyone else’s summer fun.

I’m not sure that we ever really got out of the last recession, or if the last one wasn’t just an uglier continuation of the one before that, but the reality is that we have a downturn every few years. Since the last one officially ended sometime during 2009, 2013 seems like a good guess on the arrival of the next one. That gives us about a year to prepare, and that’s Reason #4 why I’m writing about this topic.

In the strange way that life works when we’re prepared for trouble, it never seems to happen! So how do we prepare for the next recession?

Avoid (or Tone Down) Major Purchases

Major purchases do two things that hurt us when the economy turns bad: 1) they drain savings, and/or 2) they put us in debt. I’m talking about cars, houses, furniture, boats—anything that has the potential to cost a couple thousand dollars or more.

Before making any major purchases, ask yourself the following questions:

Do I actually need this item, or do I mostly just want it?
Will this item put money in my pocket? (for example, a car for work, or a computer for business)
Were I to lose my job six months from now, will I regret having made this purchase?
Even if it’s something we truly need, do we have the ability to buy it without draining our savings or adding more debt?
Would a decent second-hand model get the job done?

Major purchases can’t be easily undone—especially in recessions.

Find Income Sources Outside Your Job

For most of us, the biggest threat from recessions is the loss of a job. One of the best ways to deal with this (in advance) is by creating income sources outside your job. It’s not just a matter of adding more income, but also of exploring and developing other career directions. This is especially important if the business or industry you’re in is already wobbling.

{Learn how to honor God in the workplace}

Working outside your job will give you the experience and business contacts and references that might enable you to transform a side job to your next full time position. Get your foot in the door before the economy takes another slide.

Another option is to start a side business. You can start it and grow it while you’re still on your employer’s payroll, but if you lose your job you can ratchet the business up to full time.

Say NO to New Debt

The last thing you ever want to do is to create financial obligations during good times that you’ll have to pay for during not-to-good times. This is what drives foreclosures and car repossessions. If you want to avoid that fate, don’t add any new debt.

And while you’re at it, start working on paying off old debt. Debt is a big enough pain during good times, but its pure excess baggage you don’t need to be lugging around during the bad ones. If you lose your job, you can always cut expenses quickly, but debt takes time. You have that time right now.

Build Up Those Savings

At a minimum, a fattened bank account can give you breathing room to deal with a sudden job loss or other financial calamity. It enables you to face problems without having to borrow from banks, or beg from family. Start working on increasing your savings now.

Remember those major purchases I recommended that you not make? You can add to your bank balance with the money that you didn’t spend on them. And the extra income from your side job or side business can go right in the bank too. A year from now you could have a few months living expenses sitting in the bank, and that’ll feel good.

Get In Shape

This reads like my most ridiculous preparation, but actually it isn’t. In fact, it’s far from it. Exercising, dieting and improving your overall physical condition are always important, but never more than when hard times hit.

Consider:

If you’ll be in the job hunt sometime next year, you’ll be glad lost a few pounds and toned up a bit. When jobs are hard to get, they often go to those who look the most capable of doing them.
In the event you have to juggle two or three income sources, you’ll need the increased stamina getting in shape can bring.
The healthier you are, the less you’ll need to spend on healthcare, and the less time you’ll lose from work.
Concentrating on your health could be the significant distraction you need that will boost your mental and emotional state at a time when finances are getting difficult.

A recession will come whether or not you’re prepared. But if you are prepared, there’s a good chance it won’t be your recession! And if it doesn’t come, you’ll be better prepared for what ever else you want to do in your life. Like that run for financial independence you may have been putting off for a few years.

photo credit: Freedigitalphotos.net