Savings to Save and Savings to Spend

         "I want you to know, Ruth," a client told me, "I've got the savings part of budgeting down pat.   $300 is automatically deposited in the bank from each of my paychecks.  And, I have been doing this for almost a year."  

           I told my client I was impressed that he had made such a commitment and kept it.   Then I asked him if he knew the current balance in that savings account.

           He said, "Well, that's   the problem. I can't seem to keep money in that account. As of last week, I have only $15.00 in there."

             Many people, like my client, are able to get money into a savings account. The problem usually is keeping the money in that account. In order to be truly successful saving money, there cannot be what I call the "revolving door" that most savings accounts have. In order to stop the revolving door-you must   differentiate between savings to spend and savings to save.  

             Savings to spend is deciding to put a specific amount of money each month into a savings account   to pay for the expenses that historically have taken "extra money" - car repair, the plumber's bill, car insurance, the annual life insurance payment, the vacation. This account is rather like the piggy bank you had as a child-you put money in each week from your allowance so you could have extra spending money at camp. This account is a revolving door. This account is for holding money to spend on the items you need to pay for to support your lifestyle.

           Savings to save is deciding to put a specific amount of money each month into a savings account simply for the purpose of accumulating money. This account has no spending agenda-except for severe emergency. This account protects you from needing to cash in your investments in case of job loss or disability.   You may want to think of this account as a room with no exit door.   You deposit money into this account from your monthly budget, but except in severe emergency, there is no "exit door" to withdraw this money.  

           Separating your savings into savings to spend and savings to save is the only sure way of accumulating real savings.