Sunday, May 24, 2009

Savings Accounts. Use Them.

I did something wild this week. I took money that I had in my checking account and put it in my savings account. This is earmarked money. Half of it is money I have already spent. I ordered some flower bulbs, but the company isn’t going to bill me until they send the bulbs in the late fall. So I need to make sure that when I get the bill I’ll have the cash to pay my credit card company. The other half of the money was for a writers conference I attend every year. The entrance fee is something over $200. So I put away $200 so I can pay the fee the moment registration opens. These two expenses are definite later this year. It made sense to sock the money away in a savings account, because freelancers don’t have a steady stream of income and it’s important to earmark the cash that comes in.

I am experiencing a strange byproduct of having done it. Without that money sitting in my checking account, I’m feeling a bit broke. Not willing to spend like a drunken sailor. More careful about my immediate expenses. This is as it should be, considering that these two purchases are definite. But it brings home a lesson that many personal finance books have tried (and failed) to teach me before: You can’t just let money sit in your regular account, because having it there will give you the sense that you are wealthy, even though that might be far from the truth. And when you think you’re fine financially, that’s when you will spend more money. If you make plans for your money and segregate it in different accounts, you’ll have the money you need for the things you really want. In my case, for flower bulbs and a writers conference, but in your case it could be for an HD TV, or a discounted Coach handbag, or whatever.

This isn’t pure savings. I’m not just siphoning off extra cash I just had lying around to indeterminate savings. This is planning ahead. Maybe when the time comes to pay the two bills I’ll have cash available that isn’t earmarked for anything else, and I won’t have to use the money in my savings account. Then, that money becomes pure savings. Until I designate it for some other future purpose.

It always amazes me that I can understand the benefit of an action intellectually, but I don’t understand it emotionally until I experience it myself. I am so glad I took this action. I recommend it.

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