Pay Yourself First: The Savings Account (part 3)

Savings Account

This is the account that you are shooting for. However, the first thing you MUST do is figure out why you want this account?  What is the purpose for this account? The goal should be something large and long term. For example, you can setup a savings account just for the down-payment of a house. Or, you might want to setup a retirement savings account, over and above the other retirement accounts you have.

Savings Account

Personally, I think you should rethink your thinking on buying a house by means of credit. The entire point of this series is to get you to think outside of going into debt for things. If the emergency account says that you cannot purchase anything without paying cash first, and only in the case of emergencies should you use a credit card, how much sense does it make to put a house on credit? It is neither an emergency nor something you can pay off in full at the end of the month.

With a bit of research you can find all sorts of houses in your area that you can buy with cash. Technically, every house can be bought with cash, but not everyone can afford them. Credit is not something you should use on your home. I know this is completely against everything the news and schools teach, but your primary place of residence should never be a place in danger of you losing on a whim.

We have to rethink our way of approaching life, in this economy. We have to recognize that not every commercial is telling us the gospel truth, not every school is teaching us something without being paid to do so, not every business is telling us all the options available. The days of taking out astronomical student loans, housing loans and car loans are over. The banks are fighting tooth and nail for them not to be over, but the end is pretty much written on the wall.

So, what is absolutely best for you? Opening a hard to withdraw from, savings account at your local credit union. This is going to offer you a couple of things:

1. the discipline to not be able to withdraw from the savings account without penalty, which would wipe out your savings
2. a credit union is not going to charge you all the fees associated with national banks, which charge you fees for regular bank transactions like checking your balance.

You want to also setup some personal rules for the savings account:

• never withdraw from this account until it is due [whatever you were saving for]
• setup automatic deposits to this account as if this were an expense

The second rule is the one that most people have a hard time gasping and understanding. First of all, they will have a cell phone or buy coffee regularly, to the tune of $200 / month, but will swear up and down that they cannot save that much each month. For most, spending $3 for a coffee is nothing, but they can't seem to do simple math to realize that it adds up to hundreds of dollars a month.

Happy Piggy Bank

I pick on coffee, because it truly is something noone needs and in most cases is unhealthy for you. It is, after all, medication and not just a beverage.

You can reduce your cell phone use and plan, and put the difference in your savings. You can stop buying coffee altogether, and put the difference in your savings. You can stop buying music altogether and put the difference in your savings. You can sell your 2nd and 3rd car and put all the expenses you were paying for them into your savings.

Setting aside money in this economy necessitates creativity. Most people do not realize that we are in a full fledged depression. If the government ever admitted that, everyone would be demanding they do more for the people, and less for big businesses.

With the realization that we are in a full fledged depression we need to tighten our spending as if we are in an economic depression. That may mean:

• moving back home with parents and splitting housing costs
• taking in border / renters
• doing extra side jobs
• cancelling cell phones and getting a house phone only
• reducing cell phone plans to emergency plans with only 300 minutes a month [you can shoot the breeze face to face for free]
• ask your job if you can work from home [instead of commuting or having to buy work clothes every few months]
• learn about taxes to the point that you're an expert on it and take every possible deduction
• learn about accounting to the point that you are an expert
• eat nutritious meals that a simple and low cost [eating luxury items like pizza should be completely stopped immediately]
• selling all your extra cars except 1 family car [this saves on insurance, payments, upkeep, extra gas payments]
• car pooling to work
• doing without lots of entertainment [entertainment expenses should realistically be done away with, start considering checking out books and reading them from the library as entertainment, it's free][if renting a movie weekly and paying your house note is a debate you have to have, then you are done for anyway]

Coming to the realization that millions of middle-class americans have slipped below the poverty line in the past 3 years, since Obama took office, means that looking out for your own expenses should be taken as seriously as if your life were threatened.

What is worse, is that upper-class americans have slipped into poverty because of their expenditures and being over their head in debt. You might try and say that it could not happen to you, but the facts are there, people making upwards of $500,000 a year have slipped into poverty. It sounds impossible, but it is a glaring fact.

This is serious. This is your life.

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