About this episode
Simplified Explanation: What is Savings? Savings is, of course, how much money you have stored to be used in the future. It can be saved in your mattress, in a box, or in your pocket, but most commonly, larger sums of money are stored in a bank. Savings is not something you grab from for any small thing you want, but rather money you accumulate over time. When you really need it, the money is there; when you really want something, the money is there; and when you just want a place to store excess money, such as when you are no longer paying off your debt, it is there waiting on you. Those who use it effectively save around 4-6 month’s worth of their monthly expenses, and don’t touch those funds. They also have a checking account, where money goes in and out all the time, while the savings account is for storing money over time.
Real Life: The more you save in real life, the more you can put away towards a rainy day. You should always have a small emergency fund, in case something unexpected occurs (and it will). But after you’ve saved about $1,000, all extra money should go to paying off debt, until it is gone. Then, all that money you were spending on debt can go towards living your life, and saving to build a bigger cushion, in case something unexpected was to happen in your life.
Where would you like to save your money? When you budget, save towards a rainy day, or some event in the future. Banks will allow you to have a single account, or dozens, each based on your priorities.
Do you want a sports car? Create a sports car account, and start saving towards that sports car every month, with an account titled “Automobile Account.” If something happens to the car you are currently driving, pull from that account and pay off the car repairs; the rest stays in the account until you can buy that sports car. If your old car breaks down and you need another car, take from your car account, and put that towards the newer car; the rest stays in that account until you have enough money to afford that sports car.
Do you want to go on a vacation? Set up a vacation fund and save towards that every month. In your budget, you are giving every dollar an assignment. If you use that money, then it’s spent that month; if any is left over, add it to this account. This allows you to save for a trip in the future. If the trip is a year away, estimate how much it will cost, and then divide that over how many months you must save the money; that is how much you will need to save, monthly, if you really want to go.
What if you have extra money? If your bank account has more than enough money for the event or sports car, then you may want to adjust how much you are putting in that account. You will also want to readjust it when that event is complete. A car account can stay active after you have bought your fancy sports car, but you may want to adjust it and allocate that money to other funds. In the end, all these accounts are co
