What Not to DO is a series discussing topics based on mistakes I’ve made in my financial life. I hope by talking about those mistakes, you & anyone you talk to about finances will avoid them. I hope the lessons I’ve learned will help you start conversations with others, especially any young adults you know who are about to enter the real world.
I’m not a financial planner, I can not tell what to do, I can only tell you what NOT to do.
What NOT to Do: Fail to Save
I can remember being a teenager and knowing that I should have a savings account. I never knew what I was saving for but I knew I should have one. In college, I would start one when student loans came in but I always took from it whenever my checking account went low.
This didn’t change when I was out on my own and working. I would open a savings account in another bank and put extra money in when I had some (which was rarely). I might have $200 sitting in there from time to time. But, again, if my checking account got low, I took from it. Inevitably my savings account would be closed.
When I was married, we tried to maintain about $500 in savings but it rarely stayed there. It was only when we were both working, before having kids that our savings account was any larger than $500 and it was never more than $100.
What did I do instead?
I spent every last penny I had and then some. I shopped and when my bill was larger than the last months, if I had a savings, it would come from there. If I got extra money from a tax refund, I always started it in a saving account but it rarely lasted.
During the times when I would have needed a savings account (or an emergency fund) and something important came up like car repairs, I had to charge it. I didn’t curb my spending to make up for what I had charged. I just put it on a credit card and worried about the minimum payment the next month. I didn’t worry about the large amount that went on my card, just the size of next month’s minimum payment and looking back on that, I can’t believe how naive I was.
What should I have done instead?
Like I said above, I am not a financial planner but from what I have learned by reading other books and blogs, I should have put a certain percentage of my income away and ignored it. The typical amount seems to be 10% of your take home.
I think most of us have heard the saying, “pay yourself first.” Well when I heard it, I interpreted that as paying myself spending money first. (I KNOW! So naive.) I never really knew what that meant. And so, I ignored my savings account.
If I had saved money and left it untouched until I really needed it then I wouldn’t have resorted to a credit card. I could have paid for car repairs with that savings account and then cut back on other expenses until my savings account was back up to where it needed to be.
Sadly, none of those things were taught to me as a young adult. They didn’t come to me naturally as common sense. To me, that is a tragedy. I really wish I had received some sort of financial education.
What I am doing now.
I have been putting 10% of my income into my emergency fund. I haven’t considered my student loans as income so it’s only been the money I’ve earned freelance writing and from this blog. So far, it’s not a great deal of money but it’s improving.
I need to find a way to automate that but thus far I have not done so. I’m just sending it over on my own.
A piece of advice from me.
If you aren’t saving your money, please start an account immediately. Try to put 10% of your income away before you count it as income. For example, if your income is $2,000 per month, 10% of that is $200. Put that into your savings account and balance your budget based on $1800.
If you have young adults, please explain to them WHY they need a savings account. Explain to them what it is for and how to rebuild it after taking from it. Show them that saving should be done automatically and that the main one is NOT for fun but rather, emergencies.
Not having a savings account has harmed me financially many times over, please take to heart the mistake I’ve made and remember what NOT to do.
I also blog at A Five Star Life. I write about anything that comes to mind but try to focus on finding the good in daily life.
This honest account from someone who’s been there is so much more effective than a financial guru saying what you “should” do. Great reminder to save first, and the 10% number is a great target to shoot for.
Anna @ Good Cents Savings(Quote)
I try to shoot for 10%. I hope to increase that as I get my debt under control.
Thanks for replying Anna.
Jessica The DebtPrincess(Quote)
Great story and learning experience to share. I had a similar experience, and I will definitely teach my kids why they need to save so they don’t run into the same trouble.
Christa(Quote)
I’m doing my very much to explain this to my kids. Hopefully as they get older they will understand it even better.
Jessica The DebtPrincess(Quote)
Here’s how I convince myself to save: preventing lifestyle deflation. I know me, and I know I enjoy my creature comforts, and I know that if I don’t put away 10% or 20% or even (goal) 30%-40% of what I make, I will get used to all the good stuff that more money buys. And then if I suffer a job loss or decide to make a career switch or something happens and that money isn’t avaialble anymore, the deflation will be quick and painful. So if my life never INflate that much (because I’m saving), it hopefully won’t ever DEflate that much either.
Well Heeled Blog recently posted..Income, Goals, and What Is “Enough”
Well Heeled Blog(Quote)
That’s a good way to look at it. I’m trying to remind myself that I need to save it so I can avoid going back. I’m not going to let that happen. I have found that I don’t need the same creature comforts that I once splurged on, I’m learning to adapt.
Jessica The DebtPrincess(Quote)
I promise myself doughnuts if I save some money. That works for me…but probably won’t land my book “Promise Yourself Doughnuts To Become Wealthy” on the best-seller list.
Good advice on getting your savings account moving.
AverageJoe recently posted..Stop Reading About Last Year’s Top Ten Mutual Funds
AverageJoe(Quote)
hahaha Oh Joe, how I love this comment!
Jessica The DebtPrincess(Quote)