I often find that I struggle to relate to how someone else’s advice applies to me. What I really need is an example of how it works and to see it in practice for me to truly understand. If this is you, then you should read on.
In Part 1 of this series, I gave you all some tips on how to save money. Today I will show you where I got those tips from by showing you what I do in real life.
Reducing it into a simple model, this is how my finances operate:
- I have two bank accounts – one that you can withdraw money from, and another for high interest savings.
- I get paid straight into the high interest savings account. That way I can earn maximum interest and it’s locked away.
- I get a fixed amount of money transferred into my normal account for everyday use on a weekly basis.
- I pay for all other expenses on my credit card.
- I reconcile at the end of the month to see how I went.
What I do is effective for me because it’s simple and flexible. I’ve put some numbers into a scenario below so you can better see what’s happening:
- My income of $300 a week goes into my high interest savings account.
- I only transfer $150 a week into my normal account.
- I spend only $100 that week in cash
- I spend $200 on my credit card that month.
So as you can see, I will have $50 in my bank account unused that week. I operate a rollover system, so that money will stay in there and accumulate. There will be times where you won’t have enough and need to transfer more in. That’s fine, as long as it isn’t a regular occurrence. If it becomes regular, then it’s time to revisit whether that $150 a week is enough.
Without you even noticing, this system has already established a savings ratio of 50%, which equates to $600 a month.
If your final goal is to save $500 a month, then that $200 spend on your credit card will have pushed you below that. But don’t forget that you may have rolled over. Remember that $50? Put that back into your savings and you may still come out on top.
I don’t see imposing strict limits on yourself as an effective way to save. You must remember to be flexible because circumstances change. As long as you keep to the path towards the goal, any steps you make towards saving will be good steps.
Best of luck in trying to save! Let me know how you go by writing in the comments below.