I’m going to be honest with you. When I was in my early 20’s, I used to have the save and transfer mentality and it got me in a lot of trouble financially. It’s a hard lesson to learn but a lesson nonetheless. A save and transfer goes as follows: Ms. Jones works at a bank. She earns her paycheck every two weeks. Happy times ensue.
Ms. Jones decides to have an automatic transfer $100 every two weeks directly into her savings account for “emergencies.” Ms. Jones also decides that she should keep half of her funds in savings so she can’t “spend” it. Ms. Jones also loves shoes more than Imelda Marcos.
She sees multiple sales and decides to get a few pair to reward her hard work. With Apple pay magic via Visa, her wishes come true. Thirty days later, Visa sends her a bill—$569.98. “Oh crap! I don’t have that kind of money. I don’t get paid until the 15th of this month,” she exclaimed.
Ms. Jones goes to her online account and notices that she has $600 in her savings account. Three clicks later and $600 is back in her checking account. Mission accomplished. Throughout the year, this situation happens to Ms. Jones. The cycle never stops. Ms. Jones is still broke.
By having this type of mentality Ms. Jones will never be able to build any sort of savings in the future. She will continue to live on the edge of her checking account and human errors will happen. With errors come transfer fees, lots of transfer fees.
I have experienced these types of charges and even know someone who’s accumulated thousands of dollars in fees. It’s not just about the transfer fee that’s the problem. The primary problem is the mentality of the save and transfer method. Here are few tips to get you out of the red.
- Buffer Zone: Checking account balance should have a minimum $2000. This amount creates enough buffer zone when life suddenly throws a curve ball…like an alternator replacement. Having a buffer zone will prevent you from having to put your sticky little hands in the cookie jar also known as savings account and depleting it.
- Track Spending: If you track every transaction and cash coming out of your accounts, you’ll have an easier time calculating a monthly budget. Old school method: Notebook and pen. Digital method: Mint app.
- Hard to reach cookie jar: You can’t spend it if it’s not there. Make it a nuisance and an inconvenience if the urge of using you’re savings fund arises. Try putting it in a one year certificate or a Betterment investment fund.
- Create a true emergency fund: Not for a new iPhone release or a new Coach purse. True emergencies, like a blown transmission or a broken arm are real examples of an emergency fund. The standard savings amount for an emergency fund is 6 month coverage of all expenses.
When it comes to the save and transfer method, it feels like we’re building a castle of savings. From a distance, it’s great to build a castle of savings but not so when it’s made out of sand. One big wave later, and the castle is gone and we are worse than before. Build a solid foundation, have the right mentality and you’ll create a solid line of funds like never before.
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