Somewhere while I was digging out from $70,000 in debt, I learned that you had to be able to save and actually pay cash for purchases in order to avoid debt. Growing up this was not something that had been instilled into my thinking about money. It is something that doesn’t get much attention, but it is a needed tool in order to achieve financial success. So, let’s talk about it.
The whole system starts by extending your financial vision past the current day and thinking about purchases and bills that will be due months down the road. Then you just need to divide the bill/cost by the number of months until you need the money to come up with the monthly bill amount that will get you enough cash in hand.
For example, we know that we will need a new TV by Ferurary when US cable/antenna service switches from analog to digital. We expect to pay about $800 for a TV, so we divided that by the 12 months in the year and added that $66 dollar monthly bill to our list. Each month I transfer the money from our checking account to an ING Savings account labeled TV. When the time comes we should have all or most of the funds needed.
It really does feel good to have a plan for your money. I remember the feeling like we had really turned the proverbial financial corner when we started putting away $100 a month for auto insurance rather than paying the $3 a month service for so that we could do payments.
If you are still getting out of debt, the same strategy applies. If you don’t plan for future expenses, you will find yourself back in debt when these so called ‘unexpected’ expenses come up. With a little planning and discipline you start to realize that they aren’t unexpected at all, and that by having a plan for your money you can be in control rather than your bills.