A little over a year ago I decided to take charge of my financial life. Over the past year the progress I have made in my personal finances has been much better than expected. I have identified three things, besides luck, that have greatly contributed to my success: creating a budget, automating savings and diversifying my savings.
First and foremost creating a budget set me on the path to success with my personal finances. Prior to creating a budget I essentially just spent money without much thought. Sometimes I would have extra money at the end of the month and put it into savings. Often, the next month I would have to take money out of savings to pay bills or make an unnecessary purchase just because I had “extra” money. The savings would pretty much remain stagnant and not grow. Once I created a budget and planned where each dollar was going to go I was able to begin growing my savings. Each month I allocate money to savings and investing in the same manner as I allocate money to pay bills. This has helped me to increase my savings and investing.
Automating my savings and investing is an important factor in the success of my personal finances. Each month I have money automatically transferred from my main bank account to my various savings and investing accounts. This works great because it I do not have to make a decision on whether to save and how much to save. These decisions were already made when I made my budget. Setting up my savings and investing on a automatic schedule allows me to save and invest without any effort on my part.
Diversifying my savings has also contributed to my success. I have multiple bank accounts. Each account serves a purpose. I have a checking account that my paycheck is deposited into. I pay certain bills with this account and distribute money from this account to other accounts. At the same bank I have a savings account that is strictly for emergencies. I have a checking account at a local credit union that is used to pay selected bills and is used as a pseudo-savings account because it has a 4% interest rate. I also having a savings account at the credit union which I use for saving for expenses such as Christmas or vacations. I also have a high yield savings account with an online bank. This account is used to save money for a new car. It will be at least three to five years or more before I buy a new car but I want to start saving now since cars aren’t cheap. Essentially I have created a bucket system. This works much better for me than just having a general savings account. Before I would see that I had extra money in the bank which made it easier to justify splurging on some new item that I did not necessarily need. Now, with the bucket system in place I know why the money is in each account and makes it less likely that I will make a frivolous purchase.
For me, creating a budget, automating savings and diversifying my savings has done wonders for my finances. Having a plan, such as a budget, is important for my success. Automating the contributions to savings makes it much easier for me to stick to my savings plan. Diversifying my savings into buckets makes it easy for me to keep track of how I am doing on my savings goal such as saving for a new car. Creating this system has made it much easier to save and grow my savings over time.