The Money Bucket

Don't feel bad if this is you because it happens to most people. You finally commit yourself to save money by putting it in the "money bucket" (your savings account). You know, it's the one you signed up for when you got your checking account. Maybe a New Year's resolution or a nice big tax return inspires you to begin, but for some reason, the pattern doesn't last long. Soon your money bucket springs a leak & becomes a fund to tap into when unexpected expenses arise. Soon those unexpected expenses become regular ones.

Why does your money bucket leak?

It leaks because it's a flawed system! Your savings & checking accounts are linked. When the bank sets you up with an automatic savings plan (ASP), they say they want to help you save. That's partially true because they do want all your money (more on that later), yet easy access to your funds sets you up to fail at saving. ASPs are a great idea, because your savings grow while you sleep. One of my favorite quotes from Ronco's rotisserie cooker is, "Set it & forget it," but most people don't follow through with the second part. They set it and spend it.

Your savings account becomes an extension of your checking account. When an unplanned expense arises, it's too easy to dip into savings to cover costs. By socking away a little at a time, I've saved hundreds, even thousands in the past, only to spend it on the latest electronic wonder or a vacation I couldn't afford. Hey, I didn't call it VacationTax.com for nothing! Think about a time you committed to saving. Maybe you had a goal or a big purchase you were planning for. What did you end up spending the money on? Where is it now?

Of the countless reasons people stop saving, two stand out as regular causes of the leaky bucket:

1. Lack of a savings plan
2. For those who do plan, failure to stick to budgeted expenses.

Without a plan it's easy to get discouraged. What are you saving for? Retirement? You may want to re-think your strategy...here's why: My first ASP set up by my bank (when I was 16 years old) automatically transferred $25 from my checking account to my savings account on the 15th of each month. Why did the banker set me up with this? Not to help me save for retirement, a car, college or anything at all. He was helping me get a free savings account. That's right, my banker, my trusted advisor in his suit & tie, wasn't really advising me at all. Bankers are there to open accounts. I was saving, but how much could I possibly save at $300 per year.

Before long, I was transferring money back to my checking account to cover teenage expenses. I saw the meager savings totals & questioned the point of it all. Whenever I got a lump sum of money, I was quick to spend it because I had no base savings to add it to. I really have no one to blame but myself for this start in life, but I guess no matter how many times we're shown something, we still do need to make our own mistakes to learn our lessons. Back then I thought it was all about wearing name brand clothes & driving new cars. Now I know that I can own these things, with a sound financial plan.

What are you saving for? I know I asked this two paragraphs ago, but some people simply save for the sake of saving. Let's say you've gotten past step one & figured out a budget to save 100 per month or up to 25% of your income. What inspires you to stick to it? What happens if your neighbor gets the latest model of this or that, the new housing development in that nicer part of town finally opens their beautifully decorated models or word gets around your family that you have a little money put away, and someone needs just a little help to get by. Well nothing kills a savings plan faster than a new car or other loan payment or a family emergency. Soon you're back in "paycheck-to-paycheck" mode struggling to get by.

With knowledge, support & discipline, anyone can attain financial freedom (yes even working for the man). First, educate yourself on ways to save money, either by cutting expenses or, heck, why not by increasing your income? Look for budgeting books at your library. By the way, libraries are perfect for cutting costs! Research the web, but don't spend any money there. Beware that advertising supports most sites, so you could easily click your way in debt looking for financial freedom! A favorite free budgeting site I use, Mint.com, lets you plan & monitor your spending. It's a good start for support, but you need people behind you as well. Be sure your family is on board & stick with advisors who look out for your best interests - not those of the bank or insurance company! Finally, the key to it all is discipline. Remember, YOU have the ultimate say of what you spend your money on.

Now you know how & why your money bucket leaks. Next you'll learn about expenses that are both under & out of your control, as well as how to manage both.