For me, frugality is a never-ending game of optimization. I’m always looking for ways to either cut costs or get more out of my money. This leads us to do weird things like cancelling the newspaper, cancelling the cable, buying wood stove pellets instead of rabbit litter, and either riding a bike or taking a bus to work. (ed: Self hyper-linking skills are on fleek) The way I’ve forced myself into this position over the years is by promising to always increase our monthly savings as measured in Quicken.
From the time Marge and I moved in together, our savings plan has basically been this: Force a certain amount of savings per month by using automated investing. Money disappears from our checking account before we even notice it was there, and it escapes to a investment vehicle where it goes to work for us. The investments happen on a weekly basis to maximize dollar-cost averaging.
We started this back in 2006. I arbitrarily picked $1,000 as a savings goal for the month. When it became clear that this was too easy a hurdle, I pushed it up to $1,500 a month. Once we hit that goal for three months in a row, we increased it $100. And we’ve followed that model ever since. The amount of monthly forced savings has increased $100 or more every three months.
Now we are at $4,000 a month. As you can tell, I’ve found this method to be really effective. Every few months, we have to optimize, because the money just isn’t there! The savings must be found.
To be honest, some of this is only short-term savings. Some of the savings are used as a DIY escrow account to pay for our property taxes and home insurance, or if we owe any income taxes at the end of the year. All other expenses flow through the monthly expenses and count against that $4,000 number.
And since months can be lopsided, I sometimes have to push expenses ahead a month or two in Quicken, or push income back, to make that average savings goal appear. Funny math, but you get the picture. Regardless, that monthly savings goal is being forced into savings using automatic investments either through our workplace retirement plans or Vanguard accounts every month. If there is a temporary cash shortfall, I keep $3,000 as a buffer in a savings account.
Then every once in a while, there’s a monkey wrench thrown into the works. We get three paychecks instead of two. A tax refund. Some unexpected income shows up and I’m at a loss of what to do with it. And we are having some of those days again. Oh, joyous days! Continue reading