Thursday, July 26, 2007

Buckets and Automation

I don't know if it was nature or nurture, but it seems that I've been more or less automatically frugal ever since I've had money. It's not so much that I'm the perfect saver or never buy frivolous and unnecessary things, but I do have some natural sense of net worth preservation. Pretty much ever since I've had a bank account (I think I was 16), my balance was always growing, and ever since I've had a credit card (I was 14), I've paid it off every month. I didn't plan or budget much intentionally until I was out of college, but I always had enough of an instinct to watch the balances and make sure the general trend was upward. Nothing was ever planned or automated.
Of course, that was also when the net worth in question was usually under $10,000, and I didn't really need it for much. Times have changed, and now my plan is changing as well. I've split my general savings into 3 accounts, all paying 5%+. There's my down payment account (let's call it DP), my emergency fund (EF), and my "fun fund" (FF). The FF is kind of a slush fund for big expenses - mostly vacations, but anything that's not long term or short term will come out of that. Because of account minimums, I'm starting DP at $10,000, EF at $6,000, and the rest (about $4,000) in FF. There's also a rent fund (RF) and daily fund (DF) for month to month expenses. I'm also thinking about setting up some automatic transfers, but I haven't really decided how yet. I've already fully funded my Roth IRA for 2007, but in 2008 one of the automatic transfers will be into that. I'm thinking about some automatic transfers into DP and maybe FF as well, but I haven't decided on the amounts yet. For now, the plan is to just move the (monthly? biweekly?) excess from my daily accounts into the FF and then move the extra from there into DP, but maybe I should set some more concrete goals. I'm going to leave my retirement accounts mostly out of this, although in reality having my Roth IRA go towards my down payment is a possibility.
I've already got a budget, so it's not that I'm not planning at all, but this is a new step. Also, while working out the buckets, I realized that between my company's stock purchase plan and my Roth IRA, it turns out I'm already putting away $12,000/year that can go towards a down payment, in addition to the 10% of my salary (7% mine, 3% employer match) that's going into my 401(k), it turns out my savings rate is over 25% of my gross pay, even before I put anything extra into any of my 3 new buckets. So I guess I was doing a bit of automatic savings already after all...

2 comments:

SavingDiva said...

Wow! It sounds like you've got a lot of great habits!

Fabulously Broke in the City said...

You're pretty lucky to have had such a natural instinct to save...

My brother is like that, but I am most definitely NOT.. I had to work pretty hard to curb my spending habits and ever since I started tracking every single one of my purchases, it's been way easier knowing where my money has gone instead of trying to figure out where it did go