My Three Savings Accounts, or How I Keep My Grubby Paws Off of My Money

When I started actively saving again after years of blowing my hard earned money on I-don't -know-what, I enrolled in the Keep the Change program at my bank (purchases are rounded up to the nearest dollar and the difference is transferred from my checking into my savings) - they matched the transfers 100% for the first three months and 5% thereafter. So far I've saved $102.31 this way, and I'll be receiving (so far) $42.30 when my matching funds are distributed to me in January. If your bank offers a similar program, I can't recommend it enough.

I generally keep a fairly low balance in this account, treating it as a safety net for any accounting errors I might make, causing my balance to be a little more or less than I'm counting on. I also use it for small, unexpected expenses if I don't have room in my budget for them. For example, when the price of gasoline jumped through the roof, I used this account as a buffer until I'd adjusted my spending to account for the higher cost. This is the most liquid of my savings accounts because transfers into my checking are instantly available. Once a month I transfer $25 over, which generally covers anything I may have needed 'borrow' from myself. The balance is kept fairly low (about $100) because the interest rate sucks. When the balance is over $100, the difference is transferred into my second savings account.

My second savings account is with an online bank with a far, far better interest rate than my brick & mortar bank. This account scrapes $25 off my checking account every payday, and I often will transfer small amounts of idle cash into this account. I use it to save for upcoming major expenses, in the $200 to $500 range. These generally are not emergency expenses but they're not exactly extravagant either. The last big ticket item I used this account to save for was a plane ticket to visit my family on the east coast, an expense that I would deem a necessary luxury. I continually add to this account whether I'm actively saving for anything or not. This account is slightly less liquid than the first one, it takes a few days to transfer money back into my checking. I also receive a referral bonus if I refer a friend who funds an account with $250 or more, I receive $10 and they receive $25. So far, I've earned $30 this way. (If you're interested, email me). When the balance gets to be more than $500 or so and I'm not actively saving for anything, the difference is transferred to my third savings account.

My third savings account is actually a money market account, held at a major online trading firm. This is my Big Savings Account, the balance is kept much higher than in the others and I never pull anything out of it. Partially because I opened it as part of a promotion - if I make an electronic transfer of at least $50 a month for a year, I'll receive $100. So yeah, I leave it alone. I transfer the $50 a month, sometimes more if I can afford it. My money market account will eventually be where I keep my emergency fund, though right now a lot of it is earmarked for my wedding.

If you've been keeping track, you'll have noticed that I have received or will receive a total of $172.30 simply by being an active saver. That figure doesn't even include interest.

So if you're not saving anything, I highly recommend a tiered approach:

(1) Open a simple brick & mortar savings account, linked to your checking. If your bank offers a program like Keep the Change, take advantage of it. If not, simply do it yourself. Once you get comfortable with the idea that, yes, you CAN leave that money alone, set up an automatic transfer, something small - even as little as $5 a month if that's what you can afford.

(2) Once you've gotten used to the idea of Leaving Your Money Alone (managing to get that first account up to $100 should just about do it) start transferring any amount over $100 in your first account into a less liquid, higher interest account. Set up a transfer that will scrape a little bit off of every paycheck, and again - start small if you have to.

(3) The time between steps two and three is significantly longer than between one and two, but once you've got $500 or so in a fairly liquid, high interest account, start funding an account that's harder to withdraw on. Anything over $500 in account #2, transfer to account #3. Try to fund it regularly, about once a month. I treat my $50 transfer just as I would any other bill, it's basically an invoice from Future Me.

As you open each account, shop around and try to find some sort of promotion, especially one that will earn you money if you leave your money alone.

Right now I'm sitting on $628.76, which comes out to about $104 a month since I started these accounts up from ZERO in late January / early February. It still might not seem like a lot until you remember that I flip burgers for a living. And I live in beautiful, oh-god-the-cost-of-living-is-so-high-here, Orange County, California. If I can find $100 a month, pretty much any single twenty-something year old with a steady job and low overhead can too.

There is a Such Thing as a Free Lunch!

It's July eleventh or 7-11, which means participating 7-11s are giving away free slurpees! They're probably really small, but if you want you can hit up more than one and have a day of neverending slurpees.

Also, Chick-fil-a is giving away a free combo meal to customers who dress up like cows. A partial costume (t-shirt, hat) will get you a free entree. So if you're allright with walking into your local Chick-fil-a in a blue raspberry slurpee stained cow shirt, your lunch is on consumerism today.

Free Chicken and Slurpees. Enjoy!

Bare Bones Cash Flow Management, or Pay Your Frikkin' Bills On Time!

When I first began to gain control of my finances, I meticulously tracked every single penny earned and penny spent. I didn't find any leaks in my spending that I didn't already know about, but I did learn to manage my cash flow. Before I learned to manage my cash flow, I always had the money to pay everything eventually but I spent a small fortune in late fees and I was never really sure just how much money I had at any given point. Rent was due when I got paid, dammit - not the first of the month! I couldn't very well pull money I didn't have yet out of a hat, could I?

Turns out, I could. I am going to say something now that might shock a few people:

If your total income is greater than your total expenses per month, you have no excuse not to pay your obligations on time.

If you get paid bi-weekly, sometimes your paycheck is going to come long before rent is due. "It's cool," you might think on the 22nd, "I get paid on the 5th - so I can just blow this check on whatever and pay rent on the 5th!" Of course, when your check comes on the 5th you spend every last cent of it on rent, and then you end up having to dig up beer bottles to redeem at the recycling center just so you can put the eensiest amount of gas in your car.

Not that I've ever done that or anything.

So here's a quick and dirty list of tips for getting your cash-flow awareness into shape:

(1) Track your spending and income meticulously for at least three months. If you care at all about getting your finances in order, you should be doing this anyway.

(2) Pay your bills on time. As in "when they're due" not "just in time to avoid disconnection."

(3) If the gas bill is $42 due on the 8th, you have $82 to your name, and you get paid on the 11th - you don't have $82. You have $40. Don't take your bank balance at face value. Consider what that balance must pay for and treat the upcoming expenses as checks you've already written, debits that cannot be avoided.

(4) Try to pay as many bills as possible the day you get paid. Get them out of the way so that you can't spend the money for your cell phone bill on a $50 bar tab or whathaveyou.

If you track your expenses while paying on time for two months or more, you'll begin to get a feel for when bills are due relative to your income schedule. You'll also be able to fairly accurately guesstimate the amount of every flexible bill. If you get out of the habit of spending your survival money on stuff you don't technically need, you can blow the extra. Or, you know, save some so that when you really don't have any money, you have a little something to fall back on.

Coming Soon: A kick-ass Cash Flow Tracker in spreadsheet form for everyone to download.

Ways to Break My Starbucks Addiction

As much as I rail against buying Starbucks everyday, I have to admit that I'm often a complete sucker for them. I went to Starbucks the morning after my friend's 22nd birthday and we ordered the exact same drink, but somehow hers cost $1.15 more than mine and the two beverages together cost over $8.00. Ouch! There's also a Starbucks across from my work, and more than once I've wriggled myself into taking a longer break by picking up coffee for one or more of my bosses - sometimes this means they cover the cost of my overpriced coffee, sometimes it doesn't.

Anyway, my point is I love big cold coffee beverages in the summer. I finally switched from obnoxiously worded lattes to slightly sweetened iced coffee, and I couldn't tell the difference. The $2 less I was burning on such a silly item was nice too.

But after just a few weeks of switching to Iced Coffees, I found my Starbucks consumption right back where it was before. Sure, I've never spent TONS there to begin with, but switching to iced coffee was supposed to make the actual monetary hit hurt a little less. Instead, I just went more often because I could 'afford it' now.

Ugh!

Finally, I came up with a better solution. I've been getting up at 6:45 for class 4 days a week, so I need coffee - dammit. It's July in Southern California, so it's too darned hot for straight up brewed black coffee (which I actually prefer, most of the time). To feed my addiction I've taken to brewing coffee the night before and leaving it in the fridge to chill overnight. In the morning, I pour it into a portable cup with a little milk, ice and vanilla syrup (bought on sale at Target a while back).

There's a Starbucks on campus, and now I can walk right by it without being tempted!

Bean Counting or Goal Setting?

I spent far more on dining out during the month of May than I'm comfortable with. My spending was still well within my means, but that $64 could have filled my gas tank 1.5 times. So why did I spend so much money dining out? To begin with, my time wasn't budgeted very well last month. I spent far less time pre-cooking food for the week than I normally would. I also spent less time at home, period.

But at the end of the day, I'm not killing myself over $64. I was asked in a comment recently if I simply try to beef up the numbers in my savings account, or if I have specific goals for saving. The answer is a little bit of both - but my primary goal is to live within my means without feeling as if I'm compromising my lifestyle. I make about $1400 a month in wages, and nearly 3/4 of that is taken up with rent & bills, so stretching those last few hundred dollars can prove to be something of a challenge.

Squirrelling away large chunks of my paychecks to fund travel, major purchases, and nowadays my wedding is a major priority. Being able to afford airline tickets without compromising my rent is a big one. Taking a two week trip to the east coast that I don't necessarily need to take (though I'm sure my grandmothers would beg to differ) isn't exactly in line with the extreme frugality that I often advocate. I encourage extreme frugality as a means to an end, not as a doctrine that should be followed simply to put money away for no specific reason.

I've found that quite a few young adults - myself included until a while ago - have extreme difficulty living within their means, much less saving anything. Burn Five's goal is to present as many different means of saving and as many different reasons for saving as possible, in the hopes that twentysomethings who stick their heads in the sand when it comes to their finances will be inspired to take control and stop living paycheck to paycheck.

Network Marketing, A Pyramid Scheme in Sheep's Clothing.

A buddy of mine recently got involved in "Network Marketing," which looked to me to be just a fancy term for "pyramid scheme." After a while it became obvious that some people really do make money with "network marketing," but most of them had time, money, and resources to dedicate to it in the first place. After a few months of going back and forth with me (and probably a few of his other friends) my buddy realized that a 23 year old with limited resources wasn't likely to make a lot of money using "network marketing," at least not with the group he became involved in. Here's his story, along with some advice for how to better spend the money you might find yourself paying for the privilege to maybe make a lot of money.

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I recently got involved with a network marketing or multi-level-marketing company called Pre-Paid Legal. At first, I thought it was awesome, and so cool to be a part of something awesome, and even have a lawyer at 23. However, as time went on I found out that there’s a lot of information that they don’t tell you, and now it is time for me to get out. I am not endorsing or denouncing network marketing. In theory, it does make sense and it can work but for people our age it tends not to work for the following two reasons:

• People our age tend to not have the network or people around us that make network marketing so successful. A lot of the people that are successful at it were former real estate agents, attorneys, politicians, or well off business people. Basically, people with contacts already. Sure there are those people who started with nothing, and worked the system and became millionaires. Those people are truly rare, but the company spins it as an everyday occurrence.
• We’re too distracted or too busy to really focus on it. Not only does network marketing take some money and energy to get started, but it also takes a substantial amount of time. There are meetings, trainings, and conference calls…every week. Not only are they every week, but you have to pay for them! Sure you can write it off because you have a home-based business, but it’s a hassle, and your time can be used more productively.

Don’t get me wrong, it’s a great way to make extra money if you really really want to work it, but for us there’s a lot of other things that we can do that are both enjoyable, and help us build our wealth. So, this post is dedicated to other things to do with that monthly fee and the time it takes to work the system, and here they are:

• If you’ve read my previous post, you can probably guess what my first recommendation is going to be. Save, save, save! I have reached the point where if something happened to my job, I will be able to live for about 5 to 7 months depending on how I manage my money, and if I were to stop working tomorrow, I could keep up my current lifestyle for about 3 months. If I started with $36 and saved that $36 monthly fee over 1 year at an internet bank at say…3.00% interest, in one year I will have put in $432 dollars, and will have a total of $475 at the end of one year, gaining $7 in the process all for doing nothing.
• Invest, invest, invest. Or at the very least start learning. Mutual funds and the stock market are such an untapped potential especially for twenty-somethings. I’ll elaborate on these two topics on a later post, but the bottom line is that they can return greater returns than a savings account. That $36 monthly fee can be used for some very nice books (don’t buy them full price, get them free on bookmooch, or at a discount on half.com or amazon), or opening up a brokerage or mutual fund account (Note: that some banks/brokers have a minimum balance that you must meet to open an account…maybe that’s even more of an incentive to SAVE!).
• Take a personal finance class or basic investing class at your local community college. I’m not sure about you, but at Orange Coast College classes are $20/unit plus a health fee or administrative fee of some kind. Most of the basic financial classes are no more than 4 units, that’s about $80/class say…$90 with that health fee. That’s less than 3 months of a Pre-paid Legal membership, and I’m sure the knowledge there is a lot more valuable than what Pre-paid Legal offers at their trainings. I’m personally going back to school for a childhood dream, and I’m using some money that I would have spent on Pre-paid Legal for it.

A MacBook Air Is Going to Cost Me Four and Half Months of Wages

I've touched on this before, in my article about spending $37 on a latte, and in my last post; my favorite way to control major impulse purchases is calculating just how many hours I'll have to work to pay for whatever it is I want.

I make $11.75 an hour, which after taxes and deductions is effectively $10.00 an hour. The luxury good that I currently covet the most is the new Star Trek: TNG entire series DVD set, which runs about $300 - $400. Now, I have a deep abiding fangirl love of Star Trek, but I don't love it enough to spend an entire week's wages on owning the entire series, especially since a year's worth of Netflix is $116.28 - a mere day or two of work.

Newly released CDs are about $10 (usually more), and there are very few artists that I love enough to spend an hour and half on. The same goes for DVDs, or video games. A tank of gas for my car is about $40 now. That's a half a day of work, and if that's not incentive to find ways to keep my gas mileage down, I don't know what is.

Even those of us with jobs we enjoy would probably rather have our days to ourselves than a timeclock to punch. When you consider purchases in terms of how many hours you've worked, many of your most coveted items lose their luster, and finding ways to cut down on your absolutely necessary expenses suddenly has a tangible trade off.

So the next time you're in Target/Best Buy/The Apple Store, hell, even Goodwill considering an impulse purchase, think to yourself two things: (1) Do I really need this? Or do I just want it? (2) If I just want it, is it really worth X hours of work?

Ctrl-Alt-Delete! or: Undoing an Impulse Buy

My cell phone went completely haywire last night. The keypad was ignoring me, whenever the keypad would finally begin to respond - it would be interupted by an insistent prompt for me to speak a voicedial (I don't even use voice dial!). A creepy clickclickclickclick was coming from the speakers, punctuated by a prolonged beeeeeeeeeeeeep every minute or so.

I powered it on and off, removed the battery and replaced it, removed the SIM card and replaced it, left the phone alone for ten minutes, sang it a song, every quick fix I could think of. The phone remained posessed. Off to the the Cell Phone Provider Store I went.

Over the years, I've slowly upgraded my phones. The idea of downgrading is appalling to me, because I'm 23 and addicted to gadgets. I don't mine replacing my current model with another of the same, but I don't like to give up features I've become accustomed to. A weakness to be sure, but it's a weakness that only costs me every two years or so.

$121.62 later, I had one of those new-fangled music playin' phones. A Nokia whatever with red stripes and mp3 playing capability. Not all of my phone numbers were on my SIM card, so in what I thought was an exercise in futility, I put my SIM card back in my old phone, hoping the keypad would like me long enough for me to at least copy the numbers by hand. The keypad worked. It kept working. It's still working. Old Cell Phone is working just fine now.

Luckily I live in California and have thirty days to return the new phone. And to be honest, before I'd even attempted to use the seemingly broken Old Phone, it occurred to me that I'd really rather have $121.62, and that I should pop my SIM card into an Even Older Phone, and return the shiny new toy. Hopefully whatever technodemon posessed my old phone has been driven away for good- or at least until my contract's up and I qualify for a free phone. While I might try to rationalize the cool red stripey phone into a necessary purchase, it is NOT.

Dangit.

So how do I console myself, knowing that the shiny new toy is going back? Well:
$121.62 is enough to pay my cell phone bill. Twice.
$121.62 is about two and a half month's worth of car insurance.
Three tanks of gas.
About three guests at the wedding.
One month's energy bill.
Two month's groceries.

and the kicker?

Ten and a half hours of work. Before taxes.

Yeah, that thing is going back.

Giving Myself an Allowance

I use an outdated copy of Microsoft Money to track my finances. It generates a lot of reports for me including a cashflow projector (which I use instead of a typical budget) and some really great spending reports. Month-end is almost here again so I've been poring over my reports. Out of curiosity I filtered out all unnecessary spending categories, just to see how much money I'd have saved over the course of three months if I could manage to radically cut my spending.

$2,622.62.

In THREE months. Mind you, that's after rent, bills, food, and gas. AFTER. I've known for a while now that if I could just figure out how to cut out frivolous spending and impulse buys, I'd be quite well off. I spend less than most of my peers, and I definitely save more than a lot of them, but I could be doing a lot better. I need to be doing a lot better.

More than once I've been told that I shouldn't fuss over every penny, and I do try not to get lost in the minutiae of every other little 3 cents. But I make about $1400 in a good month, so a certain amount of spending vigilance goes a long way for me.

Until I was about 16, I got an allowance of $7.50 every other week, which was enough to buy lunch at school. I could either pack a lunch, or pocket the money. I seem to recall having a fairly active social life and still having fun with my pocket change, so I'm going to attempt a grown-up version of the same.

Every paycheck, I'll get $20. I'm paid bi-weekly, so that $20 is my pocket money. If I blow it on beers at the bar, that's it until the next check. It will not roll over. If I have cash left over when my next paycheck comes, I'll only get enough cash to get the total back to $20. Except on days when I need to buy gas, I'll leave my debit and credit cards at home.

I already put away $125 or more a month, and if giving myself an allowance cuts my impulse spending the way I hope it will, I could potentially double, triple, or even quadruple that amount over the summer.

Dipping into My Savings

Over the past few months I've gotten really good at socking money away. Next week, it's time to pay Fiance back for my half of our airfare to the east coast this summer and my half of the deposit on our wedding venue. The total is about $450. "Oh no!" I thought, going into a mild panic, "I'm going to have to dip into my savings!"

Until I remembered that the whole reason I began saving so aggressively in the first place was so that I'd be able to pull my weight with the wedding costs, and for us to visit my family on the east coast before the wedding.*

I'm fairly positive that this is the first time in my adult life that I've saved up for major purchases before making them. Before, it was my habit to just buy Whatever and figure out how to cover the costs later which resulted in a lot of nailbiting, overtime, and overdraft fees - not to mention unpaid bills, late rent, and searching the couch cushions for gas money.

Starting at age 18 and continuing (I imagine) until just before you die, there are a lot of "I'm a real grown-up now!" moments; buying a car, paying a bill, moving out, cooking your own dinner, getting married, buying a house, having kids - they run the gamut from seemingly mundane to obviously life-changing. I think putting a deposit down on a wedding venue with money I saved up for the cause is a pretty notable "I'm a grown-up!" moment.

To balance it out, I think I'm going to watch Star Wars while playing with Legos and gorging myself on sweets.

*and the Pacific Northwest.