Importance of a Savings Account

After meeting with my financial coach a few weeks ago, I realized I impulsively paid over $600 on my credit card. I thought I had planned ahead by paying the bills, putting lunch money in Keilah’s school account and filling the tank and fridge. But I didn’t take into account my weekly allowance of $200 – leaving me with six cents in my checking account for two weeks.

Even if I have all of my basic needs paid for, I feel an increased urge to spend when I don’t have any money in my checking account. I want to go out to eat, buy a purse, get a haircut, etc. even more when I only have 6 cents. I think a lot of people experience this - I see friends on Facebook setting their status to, “going to the mall to spend money I don’t have.” Historically, I would give into my urges to spend and swipe the card. “What’s $30?” I would think. Or even “$100. I’ll pay it back later.”

But later never comes and the $30 here and $100 there adds up. Fast. If I kept my old spending habits for another year, there were a lot of could haves. Could have lost the house, the car, the dignity. My Dad provided me with an article of another family that felt this way, too: http://customsites.yahoo.com/financiallyfit/finance/article-107752-2691-0-how-one-family-shed-106000-in-debt?ywaad=ad0035. They were over $100,000 in debt but, “through frugality, determination and hard work, they are now -- other than a mortgage -- debt-free.”

Since I am in sales my income often fluctuates which often makes budgeting a challenge. One of my previous sales managers told me to adjust my income to my lifestyle – I think it was an effort to challenge me to sell more. However, I have found that adjusting my lifestyle to my income is necessary to a stable financial future.   

I feel like I have to pay off the things I’ve already spent my money on before I can spend it on things I really want. Freezing the credit card has been great and the longer I don’t swipe the credit card the better I feel.   

Which leads me to the importance of a saving account – when my checkbook was at 6 cents, I had to borrow $50 from my savings to make it through the two weeks.  This amount was paid back when I was paid but only spending $50 was a real accomplishment. Taking money from the savings account that I worked hard to build helps me to spend less. When sliding the card I borrow a lot more money since I didn’t have to work for it.

I have been asking Scott, my financial coach, if I can take my savings account money and apply it to my credit card. He explains that in an event of emergency (or budget under sight) the savings account prohibits me from falling back into swiping the credit card. So even if it is $200 or $500 - establishing a savings account goes a long way.

Comments

[Brent]

Another good reason to pay cash - Many stores and restaurants (especially smaller local ones) pay high fees to credit card processors every time you swipe. By paying with cash, you help keep their expenses lower so they don't have to raise prices.

[Rachel]

Kay - thanks so much! Scott my financial coach was saying the same thing - budget off the lowest amount you could make. Def helps and then feels great when there is a surplus left over.

Scott - thanks for helping me make this realization! It is amazing how the interest adds up so quickly - it is easy to think the credit card apr is just a fraction of a small percent. When I take the time to do the math, I realize how important it is to learn how to manage my money today. Especially since I have a long list of goals!

I really appreciate all your help, Scott. I should have reached out for help sooner. Thank you!

[Kay]

Rachel,
I am in sales, too. I've found that if I can train myself to live within my smallest checks, that extra money on the bigger checks helps a ton! Pat yourself on the back for having the money to "loan" to yourself, and for paying it back!
Kay

[Scott Hoerth]

Rachel,
I am really impressed with your comment, "I feel like I have to pay off the things I’ve already spent my money on before I can spend it on things I really want."
Such a powerful statement and a great (although tough) realization about credit card debt. For example, charging a meal on a credit card that you can not afford to pay back immediately will ultimately cost you more [interest] and usually leaves you nothing to show for it.

Keep up the great work!

Your coach,
Scott