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Why Does Your Money Bucket Leak?

posted Apr 22, 2012, 9:07 PM by Jeff Wagner   [ updated Apr 25, 2012, 10:13 AM ]

Don't feel bad if the following happens to you, because it happens to most people. You finally commit yourself to save money by putting it in the "money bucket" (your savings account). You know, it's the one you signed up for when you got your checking account. Maybe a New Year's resolution or a nice big tax return inspires you to begin, but for some reason, the pattern doesn't last long. Soon your money bucket springs a leak and becomes a fund to tap into when unexpected expenses arise. Soon those unexpected expenses become regular ones.

Why does your money bucket leak?

It leaks because it's a flawed system! Your savings and checking accounts are linked. When the bank sets you up with an automatic savings plan (ASP), they say they want to help you save. That's partially true because they want all your money (more on that later), yet easy access to your funds sets you up to fail at saving. ASPs are a great idea, because your savings grow while you sleep.

One of my favorite quotes from Ronco's rotisserie cooker is, "Set it & forget it," but most people don't follow through with the second part. They set it and spend it.

Your savings account becomes an extension of your checking account. When an unplanned expense arises, it's too easy to dip into savings to cover costs. By socking away a little at a time, I've saved hundreds, even thousands in the past, only to spend it on the latest electronic wonder or a vacation I couldn't afford. Hey, I didn't call it my business VacationTax.com for nothing!

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Think about a time you committed to saving. Maybe you had a goal or a big purchase you were planning for. What did you end up spending the money on? Where is it now?

Of the countless reasons people stop saving, two stand out as regular causes of the leaky bucket:
  1. Lack of a savings plan
  2. For those who do plan, failure to stick to budgeted expenses.
Without a plan it's easy to get discouraged. What are you saving for? Retirement? You may want to re-think your strategy...here's why: 
My first ASP set up by my bank (when I was 16 years old) automatically transferred $25 from my checking account to my savings account on the 15th of each month. Why did the banker set me up with this? Not to help me save for retirement, a car, college or anything at all. He was helping me get a free savings account. That's right, my banker, my trusted adviser in his suit and tie, wasn't really advising me at all. Bankers are there to open accounts. I was saving, but how much could I possibly save at $300 per year?

What do you do when your trusted advisers don't have your best interests in mind? How do you plug the leaks in your money bucket? Subscribe or keep checking back for more!

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Recommended reading:
The Automatic Millionaire: A Powerful One-Step Plan to Live and Finish Rich

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