Wednesday, September 4, 2013

How My Savings Challenge Works & Why We Save This $

Today I'm going to revisit my Savings Challenge and how I put money away each month for this.

I talked, in detail, specifically about this, way back in June of 2011.  If you'd prefer to read that again, go HERE.
So I'll go over this for everyone who hasn't been reading since that time.

Every year, since 2009, I have tried to keep a close eye on both the monies coming in and where the monies is going out.  You really can't have an accurate accounting of the finances if you don't know how much comes in AND how much goes out and where it goes.  Not keeping an eye on one or the other end of things is like only doing half the job.

I am old school.  I don't use a software program to track my income and spending. 
I could use one but I just find having to plug numbers into a program tedious.  I know it would save me having to calculate everything in my head but I enjoy using my brain where the math is concerned.  And being a woman of a certain age, my brain can use a little more exercise anyway. 8-)

I use a sheet of paper each month instead.

I make 2 columns on the paper.....
On the left side I list all the categories of spending for the month--water bill, electric bill, cable bill, credit card bill, music lessons bill, phone bill, medical bills, prescription costs and cash withdrawals are my usual items.  Months were I have those items that don't occur every month like car insurance, taxes, house insurance, garbage and sewage bills, I just add those to the list if needed.
On the right side I list all the categories of income for the month--paychecks, rebates, stock dividends, tax refunds, per diem reimbursements, side hustle monies(like selling something or blog revenue), etc.  Of course paychecks are listed each month and the other categories are listed as needed on the income side of things each month.

I don't have a food bill category since I use cash for groceries, so the grocery expenses are in the cash withdrawals(and on rare occasions in the credit card charges bill).  I do detail & track the grocery/toiletries spending separately in my notebook so I know how much of my cash withdrawals go toward groceries.

Back to the monthly tracking of income and outgo......
Once all the bills/expense items are paid and marked on the sheet I add them up.
Then I add up all the income for the month and subtract the total expenses, which gives me either a positive or negative amount, meaning I have either some excess money at the end of the month or I am in the red at month's end.

As for our paycheck amounts--Hubs has insurance premiums(health, dental, life and long term care), all taxes, withholding and retirement funding taken out of his pay automatically.  It's easier that way.  So whatever shows up in the bank account in the paycheck direct deposit is ALL fair game for me to spend or not to spend however I/we see fit.  I know those categories are taken out and put where they need to be before I even get my hands on the pay.  It helps me sleep at night.  8-)

So we just pay the bills as they come in each month and then if we have money left over at month's end, I sweep it into an ING(now Capital One)fund called Savings Challenge.  If we have a bad financial month where we need more funds than the paycheck provides to pay everything off that month, I can transfer a portion of what has been saved for the year back into the checking account.

Besides the paychecks coming in, we do keep a small cushion of money in that checking account for peace of mind and as a first line of defense against surprise expenses and so that the bank doesn't charge us a fee to have a checking account.

So I try to save what I can each year out of the incoming cash.
At the end of the year I throw that amount saved for the year into an account to sit.
The following year, if we have expenses that our regular income each month can't cover, we take money from the previous year's surplus to cover that.
When that year is over, and we are done having to possibly cover extra expenses incurred, then that amount saved in the previous year gets moved into a permanent savings vehicle or account.

Does that make sense to anyone? ;-)

For example--
In 2009 we saved $23,865.36.
That amount got thrown into the ING account over the course of 2009.
In 2010 we incurred some "above the usual" expenses that the regular paychecks didn't cover......a car purchase at $10,600, a new fridge purchase at $773.81 and 3 trips for a total of $2087.00.  We used $13,460.81 of that $23,865.36 we saved in 2009 to cover these 2010 incurred expenses.
This meant that at the end of 2010, when all expenses were paid out for that year that we still had $10,404.55 of what we saved in 2009 to now throw into a permanent savings fund.

While we were paying for these irregular/unusual expenses in 2010 with the 2009 savings, we were still saving a piece of our income from 2010 and putting that into a new Savings Challenge fund.

In 2010 we saved a whooping $34,019.88 from all our income sources.
In 2011, while we were saving money each month, we also used $427.81 of what we had saved in 2010 to pay on irregular/unusual expenses in 2011.
So at the end of 2011, when we were ready to throw whatever was left of the monies saved in 2010 into a permanent savings fund, we had $31,834.15 left of that initial $34,019.88.

In 2011 we saved $34,461.31 from all our income sources.
In 2012, while we were saving money each month, we also used $2,627.16 of what we had saved in 2011 to pay on irregular/unusual expenses in 2012.
So at the end of 2012, when we were ready to throw whatever was left on the monies saved in 2011 into a permanent savings fund, we had $31, 834.15 left of that initial $34,461.31.

In 2012 we saved $28,907.08 from all our income sources.
In 2013(so far), while we were saving money each month, we also used $25,574.22 of what we had saved in 2012 to pay on irregular/unusual expenses in 2013.
At this point we will only have $3,332.86 left of what we saved in 2012 to throw into a permanent savings fund come the end of 2013.
2013 has been a very expensive year at Chez Sluggy, but having put all this money away year after year, we've had enough to cover all our spending.

I know I could just dip into the current year's savings challenge amount instead of raiding the previous year's account when unusual expenses come up, but I like being able to see the pile of money get higher and higher without dipping into it.  There is a sort of "snowballing" effect when you aren't making withdrawals.....it makes it easier to not spend money emotionally when you see the cash adding up sitting in an account and not being tapped.
Or maybe that's just me.  ;-)

At this point in the journey of all the money we have "permanently" saved from 2009 until 2011(since I don't touch the savings amounts once the following year's spending is over)comes to $75,830.77.

Yes, we could have just upped our lifestyle over the last few years and spent what I've managed to tuck away into this fund.  Not buying used cars instead of new, going on expensive vacations, spending more on all those variable categories in our budget could have raised our lifestyle but I doubt that it would have discernibly made us happier as people.

The fact is the percentage of Hubs salary we actually live on each year is fine by us.  We are happy in our life as it is, and don't hunger after more, better or newer things.  More things and more money after a certain point doesn't make your life any better.  It just brings with it a whole other set of problems.

Being responsible type folks at our core(see "old fuddy duddies"), we thought it was a better plan to put this money away for when the day comes that we can't generate income.

This savings challenge fund is only to be touched in dire emergencies(like a job loss), as it's planned to be additional retirement savings for Hubs and I.

It is above and beyond what we are saving automatically from each paycheck for retirement income.
Once we retire (and Social Security kicks in), we'll have SS, our Cash Balance account(or something similar to a CBP), our Personal Employee Savings Plan account(like a 401K), any cash on hand or in checking accounts as well as this Savings Challenge fund to draw from until the day we kick the proverbial bucket.
This Savings Challenge money is the 4th leg of our retirement stool.  I figure a 4 legged stool is a mite better than a 3 legged stool any day. ;-)

Sluggy

 

8 comments:

  1. You definitely have a good plan to save lots. Yet, none of you are suffering from deprivation just to save.

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  2. I prefer using a notebook too! And... WOW!! You and your family do a great job saving the moolah!!

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  3. I've kept a monthly budget notebook since we've been married (33 years) and I saved them all. Before we became enlightened that more stuff doesn't equal happiness, we spent a lot of money on who knows what. Boy oh boy, I wish I knew then what I know now. I would have saved more and spent waaaay less. Funny though, if I were to go back and tell the younger me what I know now, I'm sure I wouldn't listen to myself. :/

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  4. I use good old paper and pen for our bills too. It just seems more natural. We are bill purists if you will.
    We don't save anywhere near what you do but we are getting there. I have to say that I am enjoying the 52 week challenge because it is forcing me to "find" even more money because I haven't figured that into the bills.

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  5. Sluggy, Thank you so much for taking the time to answer my questions about how you tracked your expenses. I believe that your plan is a good model.

    Thank you again for your information.

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  6. You do have a great plan. I still have kids education to work on. I can't and won't pay for all of it, but will do a large portion. I think a 4 legged stool is much more sturdy too!

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  7. Fantastic plan! It will serve you well when you come to retirement age. In retirement just as you have a steady income coming in now, you must track every penny. But when you are retired you do that to make sure that you spend as little as possible so that your nest egg lasts for 20-25 years or longer.

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  8. I like seeing cash sitting in our accounts, too. We could spend a lot more than we do, but I just like seeing that money there.

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