Monday, June 20, 2011

Starting Out With Savings... Part 2

Yesterday I shared some thoughts on debt and why living with debt can be useful. Today I want to share that most of the time, living with debt can be a trap we don't realise we are in. 

We have one, just one, credit card that we use for 'emergencies'. Or dinner out. Or to pay the health insurance... basically anything we forget to leave money aside for. It's only a little card - it has a small limit. Problem is we let it sit there with money on it pretty much all the time. We pay off chunks here and there, its not over our heads or making us panic, its just not something we think about much. 

The question is, would we miss it if it wasn't there? 

In order to find that out, we have started to investigate our own system of finances. It was an exercise in surprise!

 We used this tool because it is set up for Australian climates and it made sense to me visually!  This helped us establish what we currently pay out weekly. If you think about it, this is really the trap. See we both get paid weekly, but most of our bills are monthly or quarterly. This is tricky because as long as I had the lump sum there during the week the bill was due I would consider it taken care of. 

Problem: what about when two bills were due that week, and they totalled more than was sitting there? Soloution: Raid the savings.
Problem: That's this week's savings gone.

Believe it or not, it actually took me 12 months to realise we hadn't saved anythingThat's because we never dug into the savings past what we were putting in each week, but we dug out every cent we had saved in a 12 month period. So even though we still had a 'buffer' in our savings - it hadn't grown. At all. 

The budget tool showed me that we had $15- $20 amounts each week that needed to be available for the utilities and regular payments.  I was spending that every week. I didn't realise it had to be allocated. 

We have now come up with a system to ensure that I won't be spending those little amounts any more. And yes, it was really me spending those things, as the account I regularly use was both bill money and everyday money. For us, that is a disaster! But that's Ok now. Tomorrow I'll show you how we fixed it. 

While you're waiting, why not share with us how you handle debt in your life?


  1. Thanks Glenda for your post and for asking us a question. I've written a short essay :p , but you've helped me think about things I don't normally put into perspective.

    During the last two years of uni I lived by myself in Sydney (which I'm not complaining about! I love it and it's my choice to do so) and only had time to work part time at a couple of jobs. I had no cash flow at all! Everything went on my CC (incl. rent, food, transport tickets, fuel, gym costs, shopping) and I spent my entire wage trying to pay it off. By the end of it all I racked up a smal-ish CC debt, which made me constantly anxious.

    Once I started working more hours, I paid off 1/3 of it within a few months. I was extremely grateful to receive a gift for approximately another 1/3 of it and my parents are fortunately in a position they were able to lend me the balance (at a much lesser interest rate than the CC or bank). I paid them back in about another 2 months and was so relieved!

    Now, my CC is under control and it's only used from the cross over between when things need to be paid for before the cash has come through - and always gets paid off in full! I save throughout the year to pay my car rego/insurance etc and for overseas holidays. I now also give regularly to church and charities, which is important.

    I am comfortable at the moment not having any long term savings. The money I could be saving is used for gym and social occasions - but at the moment health/fitness and working on my relationships with friends is a high priority. I will be thinking about long term savings (read: house deposit) more once I work full-time and will probably go to a financial planner when that happens to sort myself out!

    So, in conclusion (!), I handle debt by trying to get rid of it ASAP because it makes me anxious.

  2. Hi Glenda, so glad I found your blog! Didn't know you did one but I'm sure I'll be visiting often now that I know.

    I have always made myself a spreadsheet which funnily enough looks a little like the one you had the link to - maybe I should have sold it earlier :) We initially did this about 10 years ago to work out how much money we could realistically commit to missionaries and I have also used it to work out how much extra we can pay off the mortgage. My spreadsheet also works out how much money we are giving (church, charity, sponsor children, missionaries etc) as a portion of our income in the hope that will prompt us to be generous. I find it very helpful!

    However if you are married to someone who is not budget-inclined it can be a little more difficult. We pay everything on CC then pay off in full at the end of the month, but often there are a few more things on the CC than I expected... (usually Lego).

    Also recently we had to borrow a bit of money to pay off a debt and we got an overdraft from Teachers credit union which just means we can overdraw without charges and a relatively low interest rate that we are only charged for the time that the account is overdrawn. A much better option than CC I think. Cost me $5 last month when I was overdrawn $2000 for 1 week until pay came in. Anyway now we just have the mortgage to deal with...

    Oops that turned into an essay like Jess's!

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  4. Hi Glenda! Great timing, because I recently went to a banking/savings course where it talked about saving and budgeting etc and what you are doing is similar to what they say we should all do.

    Also, they keep telling us that small amounts of money in the long term is lots of money so even if we think that $10 a week is nothing (and we can bear to lose it).. It adds up in the long term.. If we regularly do that $10 a week is $520 a year, it all adds up and time is always on our side.

    Budgeting, especially if you are on a regularly income is very good. You can set aside what you know you will have to pay in the future so that you don't have debt! Even if you only set aside $5 a week to pay it you know you will have it when you need it =)

    Thanks so much for your blogs Glenda, very interesting and helpful =)

  5. Hi ladies, thanks for your helpful thoughts. One of the things I enjoy is that everyone has their own unique situation and way of looking at things. God is gracious in His provision, and it looks different for each of us.

    Deb - a thank you. Your openness about your budget through Brendan sharing at church how your family handles your finances was actually one of the biggest influences in getting us started . It's taken a while, but God used your example to influence our hearts towards being more intentional with our finances. So thank you! I agree it can be hard to have a 'spender' and a 'saver' in the house.

    Jess -Priorities can drive our spending and saving in certain seasons. when we were engaged, the money I had saved for future things I used towards the wedding. There's a season for spending too and in some ways it can be helpful not to hold our money too tightly.

    Lily - you raise a great point about small amounts. I was paying a $10 a week gym membership. When it finished I realized that I wouldn't miss the money as I was already living without it. I added it to my savings each week, so easy to do with online banking... That's an extra $520 a year with no effort! The little things definitely add up!

    Thanks girls I'm finding this really interesting to think through. I hope you enjoy the rest of the posts on this this week!

  6. My husband and I have been thinking about this a lot ourselves lately. We are both spenders ... Which is great when we want to be generous for good causes (neither of us have to convince the other about it) but BAD when we are just frittering it away.

    We definitely feel like we are in a savings rut, and can't quite seem to figure out why. We know we could figure out why, if we took the time to examine our spending,but neither of us feel equipped to deal with it or motivated to do it. Plus, even when you figure out where it is going, we have no idea how to reallocate it in practice. After four years of marriage, we finally have a budget. There is a spreadsheet siting in some file on the computer somewhere ... But now we are stumped as to how to put it into practice! I will be watching closely as to how you and Mr Awesome sort this aspect out! (I was actually going to ask for your advice before you starting blogging about it ...!)

  7. Sophie - Awesome, as you know, is also a spender - and for the last two years I have thrown caution to the wind and just gone with it. But I started to get nervous when I realised we had nothing to show for two years!

    I think the system has to be different for everyone. It depends what works for you. Hopefully the next few posts will provide some helpful ideas, and if not, you can make an appointment with Eyes Above Financial consulting ;)