How to Create Barriers to Your Savings
All it takes is one weak moment to reach into your checking account or connected savings account and use those funds on something frivolous. That's why it's important to protect your savings from you! The way I do this is to create barriers between me and my savings. I protect my money from me.
Trying Hard to Save
Do you want more money set aside for emergencies, vacations, college expenses, or retirement? I'm sure most of us at one point wish we had a bit more saved for these things. What we often try to do to make this happen is to "try really hard" and spend less. We tend to think that it's all about self-discipline and effort. And then when we discover that we haven't saved that much, or we blow all our savings on a whim, we beat ourselves up. Some may even write off saving completely.
While it's true that what you don't spend, you can save, I've found that unless I'm proactive with my saving, I'll usually end up spending it anyway, regardless of my frugal spending strategies. All it takes is one weak moment to reach into your checking account or connected savings account and use those funds on something frivolous. The road to broke is paved with good intentions.
That's why it's important to protect your savings from you! Yeah, I said it. You are the reason you don't have any money saved. What you need to do is take you out of the equation. Eliminate yourself from the savings process. The way I do this is to create barriers between me and my savings. I protect my money from me.
Before I explain, let me add that I think most people should aim to have an emergency fund (around six months' worth of expenses). I also recommend that you make an attempt to save for short term needs like a new TV or a vacation. It's costly to finance these things with debt. Finally, you should make an attempt to take care of your retirement savings.
Given those three general goals, here's how to create natural barriers so that you're able to save up the money and keep it there.
Create Barriers to Your Savings
For short-term, emergency-fund type savings, I recommend a high-yield online savings account. It should be one that's not directly attached to your checking account, a debit card, or an ATM. That way you can't get to the money easily.
And because transfers to and from online savings accounts typically take a few days, you'll be less likely to reach into those funds for a splurge. I've found that the three to five day window really helps me to stay away from those funds. Yet, the savings account is still flexible enough to help you if you lost your job, or had a medical emergency that would require the use of the funds.
For short-term saving goals (like a vacation), I also recommend the online savings account. A bank like ING DIRECT will allow you to create multiple savings accounts, so that you can assign a different goal to each one. And just like the emergency fund, the nature of this isolated account will increase the chances that you'll leave the money alone.
Let's look at retirement accounts. For this goal I use tax and penalty barriers created by tax-advantaged retirement accounts, like the 401K and the IRA. There are some pretty strong incentives associated with these accounts. Withdrawing money from these accounts prior to retirement will in most cases trigger a loss of the tax savings (wherein taxes become due) and possible penalties for accessing the money too early.
Therefore, keeping your retirement savings in those types of accounts, versus a taxable investment account, somewhat forces you to stay away from those funds. I don't know about you, but I certainly don't want to be paying taxes or penalties because I dipped into savings that was originally intended for a future use.
It's not rocket science. But this simple change in mindset has really made the difference for me. I hope it can do the same for you. Couple this strategy with automatic contributions from your paycheck, and you'll really start to save more than ever.