You might manage to save a few extra bucks every month, but what do you do with it? The obvious answer is that you put in in your bank account. But then what? Don’t you find that it somehow gets spent anyway – just on other items? Either planned expenses such as a vacation, or maybe a car service. Things seem to just come up.
Use one account
So let’s think about this logically… the first issue is where to save the money. In order to keep our admin as simple as possible, don’t open a new bank account or investment account. Rather have a look at what you already have, and identify the account that offers the highest interest rate along with competitive monthly fees. It’s also important to consider how quickly you can access your funds. Imagine having a large emergency savings fund which you cannot access without giving 30 days notice; that could be a disaster!
If you have a home loan consider using this as a savings account as this will generally offer a good interest rate. (The interest you earn will reduce your debt). Banks have different rules for these types of accounts though so find out what your options are.
You may consider using an investment such as a Unit Trust – just consider when you may need to access the money. Are your savings goals short or long term? How quickly can you access the money? Also, is it possible that you may lose some of your capital if markets change and rates change? Generally speaking, for short-term savings goals a bank account or home loan account are the best options; but do your homework.
Keep a spreadsheet
Now this is where people often fail as they do not keep track of the money they are saving. This is really easy and should not take more than 15 minutes each month (if that!).
Create a spreadsheet where you specify the amount of money in your savings account that is allocated to various goals. You can simply have a total amount as shown, or you can create details of the amount you save each month (consider whether you will continue updating it each month; is it worth the effort?)
This may seem like extra admin that will complicate your life but it really is not! The process is simple:-
- During the month (at any time) transfer money into your savings account.
- At the end of each month, update the account balance in your spreadsheet and reallocate money to the various goals ensuring that it all balances at the end.
- When you need money, look at what is available and decide accordingly.
You can now know how much money is available to spend and how much is allocated towards goals. It’s almost silly how obvious and easy this is. Now it’s up to you to do it!