When I was a kid my parents both carried wallets that had multiple compartments. The cash in each compartment was for a difference expense. There was a grocery compartment, a gasoline compartment and so on. In good times, there was also an entertainment compartment.
The idea was to budget a maximum amount for each category and never to borrow from one category to pay for another. This simple, methodical strategy helped them become the financially sound people they are today.
My parents' compartments controlled their spending. You can do something similar to ramp up your savings. I got this idea from Summit Credit Union in Sun Prairie, Wisconsin, which runs an annual "Project Money" competition to see how much members can pay down their debts and ratchet up their savings.
During the 7 months of the competition, Stacey and Brandon Steinmetz worked with Summit Credit Union financial coach Chris Bethke to learn new ways of managing their finances. One of those strategies was compartmentalizing, just like my parents did all those years ago.
"In the past, our biggest challenge wasn't developing a budget, it was sticking to it," said Stacey. "So…we asked for suggestions regarding how much to set aside for different needs/wants, how to track those funds, and most importantly, how to stay on course with that plan."
Their coach suggested they put their money into different "buckets" to keep their savings categories separate. That way, they weren't pulling from one pool of money when they already had funds set aside for something else.
"We weren't sure how we wanted to handle our buckets," Brandon explained. We couldn't decide if we wanted to keep all of our buckets in a spreadsheet or if we wanted actual physical buckets with money set aside in them!"
They hemmed and hawed and finally settled on the idea of opening multiple savings accounts –one for each priority. This would have sounded crazy in my parents' day, but with electronic banking it's easy to zap funds to different accounts. The couple came up with some savings categories that were needs and others that were wants:
Brandon and Stacey created 10 new savings accounts in all. Each time they got paid, they signed into Summit Credit Union's web portal and moved the agreed-upon amount of money into their different "buckets." The idea was never to use money set aside for a particular purpose for some other expense. "No going back to the old ways of making a budget and falling off the horse," Stacey said.
It worked! The Steinmetzes were this year's grand prize winners, decreasing their debts by $29,982 and increasing their savings by $14,402! Buckets were just the beginning. Brandon and Stacey also came up with ways to slash their grocery bills and coordinate who paid which bills. I'll share those strategies in the coming weeks.
If you'd like more tips from Summit Credit Union's "Project Money," you can find it at http://projectmoney.summitcreditunion.com/. Credit unions provide all sorts of free financial coaching and it's easy to find one you can join at www.findacreditunion.com.