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Saving Grace: How to Start Saving When You're in Debt

Credit Wise (featured column)
by Jennifer Wallis

Things have definitely changed since the days when my parents were growing up. All right. Fine! I admit it (even though it makes me feel like I’m getting old). Things have changed a lot since I was a kid, too. I remember when it was customary for your parents to take you down to the local bank to open a savings account as soon as you could grasp the concept. Most of us started with good ol’ piggy and graduated to the real bank when we’d collected enough $5.00 birthday checks from Grandma. I remember how diligently I’d keep my savings ledger up-to-date.  I recall being so excited when I had enough pennies saved to warrant a trip to the bank. Do most parents even do that anymore with their kids?

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Some of you may even remember the days when “consumer debt” were dirty words. Not that long ago, it was uncommon for people to have a lot of debt. Credit cards were rare and it was virtually unheard of to have thousands of dollars worth of credit card debt. Bankruptcy was a last resort and was pretty scandalous in small towns where you didn’t want your neighbors to know your financial secrets. Now, it’s just a slight hiccup in someone’s financial history. Yes, we’ve made progress in some areas but when it comes to credit card debt; our culture has gone too far over the line.

Recently during the talks between China and the U.S. the difference in the national savings rate was a hot topic. Take a guess. How much do American’s save? At last count it was less than 1% of our income. The Chinese save about 50% of their income. That is an amazing difference! Think about it. For an annual income of $40,000 the Chinese save $20,000 compared to a dismal savings rate of $400 for Americans. It would take forever to change these spending habits we have developed so I’m not proposing that Americans start saving 50% of their income. From an economist’s standpoint, too much saving is bad for the economy. However, what if we went back to the days when we saved 10% of our income?

Back in the good ol’ days, families saved money. Then, when the car needed tires or the dog got sick, they’d dip into their savings account and pay for it. Yes, we saved for retirement but we also saved for emergencies. That is what it was there for. Over the past several years with the availability of fast cash and credit cards, we have shifted away from saving. Now, if the air conditioner goes out, we just finance the repairs. Need cash when the radiator goes out in your car? Get a loan! Want to buy something you can’t afford? Just charge it! It’s an easy trap to fall into. Then, instead of saving, we are too busy paying credit card bills to save. We just don’t have the money.

It never ceases to amaze me how much the holiday season can send people into a frenzy. Many people act like they don’t know when Christmas is. It doesn’t change. Same day every year. But, we just don’t plan for it. Then, before we know it, the bell ringers are posted outside department stores and the line to see Santa snakes through the mall. The year just goes by and before we know it, we are faced with Christmastime and no savings. Then, another Christmas gets financed on credit cards and maybe you’re still paying for the last one.

We have to change this cycle we are in. I’m not trying to demonize credit card companies but we need to find some healthy balance into our way of thinking. If we are going to fix the financial problems that so many people are facing, we need to start at home. Whether it’s to pay for Christmas next year or to begin your emergency fund, here are a few ways to kick start your savings.

Begin with a grand scheme: 

Develop a spending plan based on your income, living expenses and debts. How much can you afford to save? If you can’t begin with 10% of your income, begin with whatever you can afford, no matter how small.

Pay yourself first: 

If you wait until you pay all of your bills, buy the kids what they want and need, and purchase all of the expenses that come up through the week, chances are there won’t be anything left to save. If you sock away money into savings right after you get paid, you won’t spend it on impulse items.

Out of sight, out of mind: 

If your employer offers direct deposit, enroll in it. Then, designate an amount of your income to go directly into a savings account. If you never see it, you never miss it and it will be there when you need it. If you don’t have direct deposit, you can still deposit a percentage of your income into a savings account.

Avoid temptation: 

If you find yourself robbing your savings account each and every month, try putting your savings account in another bank. Preferably across town. One with typical banker’s hours that is hard to get to before they close. That way, you have to make more of a conscious effort to withdraw the money. It’s there when you need it but you probably won’t withdraw funds on a whim.

Roll, baby, roll: 

Once you pay something off, instead of spending the money you used for bill paying, save it. If you’re already used to living without that money, you won’t miss it when it’s sitting in your savings account for a rainy day.

Raise the bar: 

If you get a raise at work, consider putting that extra cash into savings. As you do this, you will find yourself relying on credit cards less and less.

What if I just can’t? If you feel like there just isn’t anything to save, let’s compromise. Start small. Just get into the habit. The amount does not matter at first. Just put something in savings. Then, increase it when you can. If you can’t put your entire raise into savings, start with half of it.

I know that saving can be tough but starting is really the hard part. Once you begin, it’s pretty exciting to look in the bank and see how much you have just sitting there. The key is to stick with it and don’t be too hard on yourself. If you have an expense come up and have to use your savings, it’s OK. Just start again. At least it wasn’t something that you had to put on a credit card. You got through a mini crisis and didn’t get further into debt. It’s finding those little victories as you go long that will make you successful. If you can make it through this holiday season without acquiring debt, good for you! If not, start saving now for next year.

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Copyright © 2006 by Jennifer Wallis. All rights reserved.

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