Over the weekend, I finally decided that it was time that H and I organized our savings accounts and created a strategy to pay off our remaining debt. We still havent figured out our retirement strategy (yet, but will be talking about that soon). The tough thing about finances is that many of the things that really help (like setting up auto deposit to a savings account) take some time, and many people put them off until later (like me, writing this almost a month into the new year). However, once they are set up, you dont have to think about them again.
Right now, H and I maintain four different savings accounts, each with a separate purpose. We have an emergency fund (1), a savings account for child related expenses (2), one for vacations (3) and finally, an account for house related expenses (4). These accounts help us keep money for specific tasks, but were getting very cumbersome to manage. The automatic transfers were all set up, but were based on when I got paid 2 times per month, as opposed to 1 like I do now. So there were withdraws of different amounts different times of the month, and all in all, there were about 7 transfers over 30 days, for varying amounts (of course).
Since we put most of our spending on a credit card during the month, I always have to make sure to leave enough money in our checking account to cover these withdraws as the month winds down. Each month, I have to add up the amount of each transfer and guesstimate how much will be in the account on that day. I started to get tired of it recently, so decided to change things. I wanted something that was quick, easy and required way less work on my part.
The first thing that I decided was that I wanted the transfers to happen soon after we both get paid (on the 1st) and later than our mortgage payment gets drawn in case something dumb were to happen, I like to make sure that always gets paid. Once I picked a day, I went over the total amounts we were putting into each account and then thought about making adjustments.
Here’s what it looked like:
After looking at the numbers and the total amount we were saving over all the accounts, I compared that with our monthly income and decided that this percentage was a bit too low for my liking. So now, instead of 7 withdraws from our checking account spaced over the month, there’s 1 withdraw at the beginning to all 4 accounts, and it looks like this:
This is going to be much easier to keep track of than multiple different amounts on different days, and it’s also a nice round number that H and I are comfortable with saving each and every month. This is in addition to our retirement contributions, so I think we will be saving money at a pretty healthy rate going forward. Once we get the emergency fund up to about 4 months expenses (somewhere around 12-15k) we are going to stop deposits into that account and redirect the cash elsewhere, though we are not sure where at this point.
Some of this was possible by the reductions we made in key monthly expenses late in 2013, like getting a new internet provider and switching to republic wireless. Those two moves alone saved us ~1,500 per year – something we will happily add to our savings. Next, it’s time for us to get our retirement situation figured out for 2014, and look into life insurance, wills and other documents that would cover us in the event that the unthinkable happens to either (or both) of us, now that we are expecting.
Readers: What savings changes did you make this year?