As I’m sure you have figured out by now, the theme of this week’s posts has been “Be the boss”.
“Be the boss” is really just a memorable way for me to say to you: Be in charge of your money. Don’t just let is slip through your fingers. Take the lead. Be intentional.
We have already talked about how to be intentional with fixed expenses and variable expenses. Today we are going to be super intentional because we are looking ahead to Seasonal, Annual & Future Expenses.
Or, in other words: Savings.
Born Savers v Learned Savers
Some people are born savers. They just naturally squirrel away money for a “rainy day”, easily deferring their current wants and needs for their future ones. My middle son is like this. He gets his allowance and saves the whole thing. His needs and wants are pretty minimal at age 10, but he really likes to see that balance grow. His older brother, on the other hand, can’t seem to keep a dollar in his wallet for longer than 5 minutes. Shiny, flashy things call his name – and take his dollars.
For my oldest, saving is going to be a learned behavior. I, too, was not a born saver. I like things to be concrete. Tangible. Putting aside money because maybe I’ll need it for something, someday? That doesn’t feel concrete to me. We’re out of milk, my kids needs new basketball sneakers and our health insurance premium is due next week – now that feels concrete.
The way that I’ve been able to become a saver is by giving every savings goal a defined purpose. By making it concrete. Just like every dollar we spend gets a job, every dollar we SAVE gets a job, too.
Saving is really just spending – deferred.
- We don’t need to pay for our son’s Bar Mitzvah today, but this summer we will.
- We don’t owe our life insurance premium today, but next November we will.
- We don’t need a new car today, but with over 165,000 miles on van, we will.
- My kids aren’t ready for college today, but in six years they will be.
In order to be prepared for your Future Expenses, you need to budget for them just like you do with Today’s Expenses. You can do this one of two ways:
1. You can cash flow them when they happen. This means that the month your car goes kaput, you have enough money THAT month to cover it in full.
2. You can save for them in advance. Your life insurance premium is $600 per year. Each month, you put $50 in a savings account called “life insurance”. When that bill comes due, you have the full amount set aside. Your son’s Bar Mitzvah is in two years, and you plan to spend $10,000. Each month for the next 24 months, you save $416.67 in a savings account called “Bar Mitzvah”. When the happy day arrives, you enjoy the festivities stress-free.
You may notice that there is no third option called “Put it on the card”. I am not anti-credit cards, but I am anti-credit card debt because it adds heaps of unnecessary stress to your family and your finances. Stay tuned for next week when we will talk more about the impact of consumer debt on budgeting — and how I recommend reducing your debt load if you are already carrying some.
Today’s homework is to start coming up with a list of your Seasonal, Annual and Future Expenses. You may have some tracking data related to these, but most likely you will need to dig into the last year’s worth of bank statements to jog your memory. If you are not accustomed to predicting future expenses, this is a great activity to do together with your spouse — work together on making as complete a list as you can.
Next, assign a total dollar value to each item, and then walk that total back into the per month amount. If the item is an annual expense, for example, divide your total by 12.
Keep in mind: When it comes time to put these items into your budget, there may not be room for all of them. Next week, I will teach you the process I use to prioritize when there are more expenses than income.
Bonus: What Mara Saves For!
Everyone will have different short- and long-term savings expenses, but I thought it might be helpful if I shared some of our “deferred spending” categories:
- Property Taxes
- HSA (Health Savings Account)
- Summer Camp
- Home Maintenance & Repairs
- Auto Maintenance & Repairs
- Bar Mitzvahs
- Home Insurance*
- Car Insurance*
*The insurance company is happy to bill my premium monthly, but there is a “convenience” fee for this. I achieve the same monthly convenience by saving it myself and then paying the insurance company twice a year with no fee.
P.S. There are is one kind of savings goal that I didn’t address today: Emergency Fund savings. Having a robust emergency fund is essential for your financial well-being. We are going to discuss Emergency Funds in depth next week, so for now, just hang on to that thought.