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Saving Before Checking
Where does your paycheck go every month? Do you get direct deposit into your checking account and then, after the bills are paid and extra expenses covered, do you transfer whatever is left into savings? This may be a normal routine for many people, but given the current state of the economy, it may be time to consider a better saving strategy.
“People need to focus on ways to protect and empower themselves,” says Liz Pulliam Weston, author of Easy Money. She adds that empower is a key word because people should focus on what they can control – how much they spend and save. “Saving and living below your means is the direct way to build wealth in the future,” Weston said.
As with any difficult endeavor, having support is essential. For someone who’s trying to save, a community of positive support will reinforce saving habits. Because of the economic crises “saving is getting more chic…but people still need support,” Weston says.
Right now she’s sponsoring a contest that encourages these two principles: saving before checking and supporting each other in saving. The contest’s five finalists were recently chosen, and readers can follow them online while they compete to see who can be the best saver. The Pay Yourself First Challenge is as much about the contestants working to save as it is about inspiring readers following their blogs to be proactive with saving.
The contestant’s paychecks are deposited directly to a FNBO Direct savings account, and they transfer only what’s needed for the month into their checking account. Weston calls it a “reverse on an old idea.” Because all the income goes directly into savings first, you can get the maximum interest on your cash.
Contestants keep readers updated on their blogs to share their strategies, hardships, and whatever comes along the way. One contestant, Kristen Shaul, said she had already faced to challenges this month: the radiator in her home broke and her baby had pink eye. “You never know when someone will get sick… you need some kind of plan for little roadblocks,” Shaul said.
Currently in first place in the competition, Shaul is saving to pay off nursing school. She and her family will then be moving back to the Dominican Republic to help provide free healthcare. Watch her video entry here.
Shaul added that when all the contestants met they bonded really quickly over their plans to save. She said they stay in touch and bounce ideas off each other. “We want to help each and see each other succeed,” Shaul said.
That community among contestants is what Weston hopes will spread through to readers. She hopes the contest will attract people who hadn’t been thinking about saving before. Weston added, “Saving more means you’ll have a more comfortable life regardless of what’s going on in the economy.”
Have any good saving tips? Share them in our comment section below.
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Nice piece Susie!
I do think it’s important to distinguish between the form of Ms. Weston’s advice (deposit to a savings account first, then move to checking), and the substance (make saving a top priority, not an “if there’s any money left over” priority.)
Indeed, their are cases in which the concrete advice (savings account first) can work against the substance (save more money and earn more on what you save). One obvious one are “rewards checking accounts”.
We’ve covered these unusual accounts already at FiLife (see http://blog.filife.com/fideals-checking-out-reward-checking/ , and I’ve offered my own take on them at http://www.rethinkingmoney.com/rewards-checking-accounts-good . The bottom line is that by using these accounts as a place to save AND spend, someone can end up with significantly higher interest and fewer hassles than they might if they are keeping separate checking and savings accounts.
Of course, if having distinct accounts for savings and spending helps you keep your discretionary spending in check, then it’s probably worth keeping that arrangement. But we should not assume that separate accounts is the only prudent way to handle our money.