Personal Finance Blogs and Saving

I took some time yesterday to look at a few personal finance blogs.  My daughter has been telling me about those that she follows, so I checked one out.  That blog is The Simple Dollar.  The author has a “picked myself up from financial ruin and improved my life” theme and he appears to post good common sense - which as you recall, is not so common anymore.  Reading his blog made my always synergizing brain start pumping out ideas for posts.  The real life of someone else is always a touch stone for others, whether they shake their heads in disbelief or nod because they relate.  The particular post I found interesting concerned snowflaking as a method to reduce debt or increase savings.  It is all about forming positive long term habits.

My Method for Saving While Still Having Fun

I always encouraged my daughters to save.  And those lessons carry forward because they are both still savers and investors.  That doesn’t mean they don’t have fun and spend money.  It just means they are intentional about their spending.  Being frivolous was not a way of life in our household.  It is something you do once in awhile to have a fun moment that you remember with glee.

So what is the savings lesson?  When I was a financial advisor I taught that there are 3 types of saving - one for short term or emergency needs, one for midterm needs (3 - 10 years) and one for long term needs (10 years or further away).  I am no longer an advisor and this column is not intended as professional advice.  I just know a lot about it and like to share ideas that can be helpful.  It is always important to have money tucked away in very safe accounts to meet those short term needs.  If your car breaks down or you have to go to the dentist, or some other non-negotiable event occurs, you need to be able to pay for it without racking up debt on your credit cards.  This money can’t be risked.  General guidelines will tell you to have 3-6 months worth of living expenses.  I say work towards a year’s worth of cash, especially with the employment situation the country is in right now.  Wouldn’t you like to NOT have to worry about where your money would come from for a year if you had no income coming in?  If you are retiring, it is good to have 2-3 years of income in cash just in case the market does what it did in 2008 and you will have some time for your longer term investments to try to recover.

Mid Term Savings and Long Term Savings

What things would you save for that might be out as far as 10 years?  How about paying cash for a new car or at least putting down a large down payment so you can pay it off in 2-3 years?  How about a real estate investment that you would like for an income stream from rentals or a lake house to use on weekends?  How old are your children?  Will they be going to college within 10 years?  Wouldn’t it be nice to have a cushion to help with those expenses?  I’m sure you can think of other desires you have for the next 10 years.  For retirees, these investments should include your less volative investments that provide income or future appreciation that you can tap into 5-10 years down the road.  Investments that won’t be needed for 10 years or more can be positioned to generate higher returns but they also typically incur greater risk.  Many people who are retiring soon think they need to get rid of all risk in their investments.  But the bigger risk is inflation.  Ask yourself this question - are you going to USE all your money within the next 10 years?  I didn’t think so.  So think differently about risk and read some good books on the topic.  You can start with titles in my Recommended Reading List on this site.

Saving for Fun

Well this is all well and good, but we did mention fun at the beginning of this post.  I’d like to share a story about my youngest daughter’s savings habits when she was still in elementary school.  She was perusing her savings one day and I stopped to chat with her about how she was doing.  She was a very wise child and said “Mom, I have 3 jars of money.  The first is for fun cheap stuff, like candy.  The second is for things that cost more, like a video game.  And the third jar is for the money I’m saving for something special I might want that is more expensive.”  I thought that was a pretty good plan for an elementary age saver.  She had already decided that some money wasn’t to be touched unless it went towards a specific financial goal.  We eventually put her “more expensive” jar of money into a money market account and she left home with it intact when she went to college.  And 8 years later I would bet she still has most, if not all of it.  That’s the way long term money is supposed to be handled - as if it doesn’t even exist.  And she still had the freedom to spend her short term (candy) and mid term (video game) money because she made a plan.

So make a plan.  Check out some good personal finance blogs (The Simple Dollar) has links on the home page to Blogs I Read), read some good books from the library, and keep coming back here for more insights to help you create wealth and breathe a sigh of calm because you are putting away 3 types of money.  You can afford a fun reward to celebrate all your efforts.  If you need to tackle debt first, read some of Dave Ramsey’s books to get you started.  Create good habits to replace the old bad habits.  Now, go out a buy yourself a little treat because a fun reward doesn’t have to be expensive.