We talked before about budgeting.  Now that you have control of your expenses, it’s time to talk about saving money.  US saving rates have skyrocketed recently (to a whopping 5%!), so it seems appropriate. 

There is a difference between saving and investing.  Saving is taking money from your current budget and putting it into a future budget.  Investing is putting current money to work to produce a larger sum in the future.  Investing successfully always has an element of luck to it (this doesn’t mean you shouldn’t do it), but you can always save successfully; it’s just a matter of discipline. 

We’re not talking about investment today.  We’ll do that next week.

Here are the 5 rules of savings:

First rule: nothing saves money like not spending any.  Now, I am not one of those “true spirit of Christmas” guys that thinks spending $500 on presents is the same thing as apostasy.  I think part of the true Spirit of the Season is that millions of people spend billions of dollars without ever buying a thing for themselves.  But no impulse buying just because it’s a smokin’ deal.  My favorite gimmick is the 40% off sale, where you can buy two and save even more!  Try this: buy zero and save all of it.  Works every time. 

Second rule: the best defense against debt is an emergency fund.  Saving the $4.2 million you need for retirement is a chore, so don’t save $4.2 million.  Save $10k.  That’s not the easiest thing in the world either, but it’s a whale of a lot more do-able than the whole enchilada, and more important to you, too.  The emergency fund means that you won’t be going backward when the washer dies.  You can keep moving forward and not eat up the savings with credit card payments.

Third rule: save a little all the time.  The aforementioned $10k breaks down into about $200/mo for 4 years.  Sound like a lot?  I guarantee that you can save $200/mo.  If you don’t think so, email me at the address below.  If you win, I’ll buy you lunch (that will save you $20 right there).  Take a bit from each check, even if it’s only $1, and put it somewhere that isn’t your checking account.  Ideally, you want two baskets, one for an emergency fund and one for long-term savings.  The first one tops out at $10k, the second is open-ended.

Fourth rule: never touch the long-term savings.  You want something?  Save for it (short-term savings).  You have an emergency?  Use your emergency fund.  The long-term savings (the other bucket) is untouchable.  You’re going to need it later, and make no mistake, it will get later.  Put it away, and leave it there.  There’s a power to it that you want on your side.

Fifth rule: remember what it’s for.  Okay, okay.  This breaks the fourth rule.  But remember, money is money.  If you have an opportunity, a disaster, a critical need, use the money.  That’s what it’s for.  As an example – I have clients that had $40,000 in 401(k) savings that they just pulled out and used to pay off all their debt except their car and their house.  Average interest rate savings: 22%.  It’s a lot more if you count the negative rate they were getting in their retirement accounts.  It cut their monthly bills by $450 and put them in a much stronger financial position.  Yes, the savings will have to be built up, but they can do that a lot faster now than they could before.  Bottom line: remember what the money is for.  It’s for you.  Use it for its purpose.

Chris Jones is the Magician Resident of the Chris Jones Group, on Main Street in Lehi, offering mortgages through City 1^st Mortgage Services. Watch for the movie quote in the window – you too can win.  Chris can be reached at chris@lehilender.com.