Day 13: Pay for Your Dreams First
Did you know that on average, Americans have a negative savings rate? How do you have a negative savings rate? We spend more than we make. How can you ever achieve your dreams if you don’t save any money to make them happen?
Yesterday, we put the finishing touches on a true budget – one that reflects your own dreams and your own financial realities, not someone else’s concept of what you should be spending and saving. Today, we begin the process of seeing what that budget actually means.
Most people never really achieve their dreams because they never get started. They keep believing that they’ll save tomorrow for their dreams, but when tomorrow comes, nothing changes. Because of the budget you just assembled, you’ve now seen that it is possible to save for those dreams. You can achieve your dreams, you just need to put together a plan to achieve them.
Now do it.
Before your next paycheck arrives, open up a savings account at a new bank. I’d recommend choosing one of the online offerings such as HSBC Direct (5.05% APY) or ING Direct (4.5% APY). Their rates are stellar and (at least with ING, I have limited experience with HSBC) their customer service is incredible.
Why use a new bank? Having an account at a new bank means that it’s not already part of your normal routine. Many people open a savings account at the same bank as their checking account, but whenever they see something they want at the mall or something, they know they can stop at the ATM and pull money from that savings account. By getting an account at a new bank, you can simply never take the ATM card with you – or, better yet, not get an ATM card associated with that account at all. This drastically reduces any temptation you might have to spend that money.
Got that new account? Now, when your next check arrives (or now, if you have some extra cash right now in your checking account), create an automatic monthly withdrawal from your primary checking into that account. The amount of this withdrawal should be equal to the sum of the money you’ve budgeted to spend each month on your goals in the budget we’ve created this month.
By doing this, you’re doing two things. One, you’re getting started towards building your dreams. Every single month, your finances are moving towards those goals you’ve defined for your life. Two, you’re learning how to survive with a bit less money each month – and soon you’ll see that you won’t miss that amount at all.
Money Market Account
Another option is to open a money market account with check writing privileges. We have two open – one at our bank and one with an investment adviser with a minimum $500 for any check written against the account. This prevents us from spending the money without thought – writing a check for over $500 is a thought provoking experience. It acts like a checking account so you can setup automatic deposits into it from the primary checking account or from your automatic payroll deposit.
Tomorrow, we’ll take a look at the “extra debts” portion of the budget.
Create an automatic savings plan by setting up a new savings or money market account. Setup an automatic transfer to move money you’ve setup for your goals into the account each month.
Ready? Let’s continue on to the next day.