It’s one of the most basic tenets of personal finance — the idea that you should pay yourself, i.e. put your money into savings, before you spend on anything else.
It makes total sense. If you put away a good portion of your paycheck into savings before you do anything else with your money, you’ll be less likely to spend it.
That’s why so many personal finance experts advise you to “set it and forget it,” i.e. set up automatic withdrawals for your savings. By automating deposits from your checking account into your savings account, you can make sure you’re depositing money every month, or even every week — without any extra effort on your part.
Despite the fact that Holly Trantham a freelance writer for The Financial Diet, writes and edit articles about personal finance every day but she never did this.
Just around the time she started caring about money, Holly also started her freelance career. Her income was inconsistent ever since. Sure, she knew about what she was going to earn every month, but it could fluctuate. She didn’t always know when she was going to get paid. She could expect her invoices to be filled around the 1st or 15th of the month, but never knew for sure. She couldn’t set up automatic withdrawals on specific dates, because she couldn’t always be sure she’d have enough money in her account to cover them.
Holly started reading about ways to cut back on her spending and save money, but did not find anything that worked for her. There were countless times she would transfer a big chunk of money into savings, only to then transfer most of it back the next week to cover costs between paychecks. Because she couldn’t set up automatic transfers, Holly felt discouraged to set aside money at all. She didn’t see the point in saving money unless she was transferring a large amount. She never bothered saving small amounts on her own, because she never saw how small amounts could add up quickly.
But, at the very least, Holly needed to figure out a way to set aside money for taxes. After her first year of freelancing — a rude awakening came during tax season. Holly knew her life would be so much easier if she could just automatically set aside that 30-40 percent of each paycheck she received. So she read up on various savings apps, and finally settled on Qapital.
Qapital works by linking your spending accounts (i.e. linked bank accounts and credit cards). You can set up personalized savings goals and apply a different “rule” (or multiple rules) to each goal. The rules tell the app when and how much money to deposit in each specific goal.
For example, the “Round-Up Rule” lets you round up each purchase you make and then deposits the change into your selected savings goal — so if you specify for the app to round up each purchase to $1, the next time you buy a slice of pizza for $2.50, the app will round it up to $3 and deposit the remaining $0.50 into the goal you’ve selected. The “Guilty Pleasure Rule” lets you automatically sets aside a certain amount every time you indulge in something you’re trying to resist — that could be $10 saved every time you cave and order Seamless. And the “Freelancer Rule” sets aside 30 percent of each deposit whenever you get paid — so no more worrying about those quarterly tax payments. Qapital has rently added more options including a checking account and debit card.
Holly was excited to start using the app. She finally would be able to set aside money for taxes without the hassle of forcing herself to do so — it was one super-annoying money thing she finally would have taken care of. But what she didn’t realize was that each of Qapital’s goals is customizable; you can change the amounts and percentages to whatever suits you. So while she could use the Freelancer Rule to save 30 percent for her taxes, she could also set up a second Freelancer Rule to save a different percentage for something else, and a third, and so on.
After looking through her spending and deciding how much she could save, Holly set up several savings goals. then applied the Freelancer Rule in different increments to each goal, which now looks like this:
- Taxes: 30 percent
- Retirement savings (transfer to her Roth IRA once a month): 10 percent
- Moving fund (to cover first month’s rent/security deposit/other expenses when she moves early next year): 5 percent
- Vacation fund: 5 percent
The beauty of the app is that Holly can change her goals whenever she feels like it. For instance, when Holly first started, one of her goals was to pad out her emergency fund, but when she got to a certain point, she ended that goal and moved on to saving for her upcoming move.
It was such a good system for Holly in so many ways. Not only did she cover her taxes, but now, whenever she wants to cover trip costs, she just dips into her vacation fund instead of putting them on her credit card and praying she will be able to cover it later. Holly is still learning to have discipline with money, and soon wants to add even more goals — such as a gifts and charitable donations fund, or even a wardrobe fund to make buying clothes a more straightforward part of her life, financially.
There’s a lot of personal finance advice out there that’s touted as tried-and-true: “This works for most people, so it will work for you, too!” But when some tactic that’s universally revered, like automatic savings deposits, doesn’t work for you, it can be incredibly frustrating.
But that’s one thing the personal finance community has, in the past, often gotten wrong: There’s no one-size-fits-all solution for everybody. We’re all dealt different hands in life. Regardless of whether it’s out of necessity or desire, some of us make unconventional life decisions — and that means we need unconventional solutions. Holly was so glad she found Qapital, because it’s made reaching her savings goals.
So if you find yourself struggling with pieces of conventional personal finance wisdom, there’s a better solution for you somewhere — you simply have to go looking for it.
Source: NBC News