Tuesday Tip of the Week: May 30, 2017
Out of Sight, Out of Mind: Long-Term Savings (Continued)
Welcome back to “Tuesday Tip of the Week.” Yesterday I spoke a little about perception and what it means in regards to your money. When it comes to perception and money there are two factors that you should consider. One is not caring what anyone else’s perception is of how much money you have. Like I mentioned yesterday many of the richest people I know dress modestly, drive a modest car and don’t flaunt their money. That mindset is vital. Another key perception you have to have is of your own money. These same rich people I spoke of in the last line all have some money that they don’t touch, ever. Their perception of this money is that it doesn’t exist. You have to have the same perception of some of your money.
What is the point of having money that you don’t touch or can’t easily access you might ask? Think of it like insurance. You don’t buy home or auto insurance hoping to use it. Do you know many people who actually made a claim on their home insurance? Besides the fact that it is annoying to make a claim, not many houses burn down or flood out. That money you have stashed away is your insurance blanket, keeping you warm at night. As mentioned yesterday this becomes especially important for those trying to save who have “weak willpower.” For some, and I used to be guilty of this, money burns a hole in their pocket. If you are trying to save it then becomes essential to have your money in a place where you can’t easily access it. Here are a few suggestions for people trying to save on where they can keep their money.
Good: Safe or lock box in your home
I do not recommend this but hey, do what you think is best. For the longest time, I was stowing away money in my closet. After a while, it had grown to a substantial amount. That was until a friend of mine had money stolen from her apartment. The very next day I deposited my money in a bank account. I didn’t even have a safe; it was just sitting in a jacket pocket. The problem with using a safe is that unless it is bolted to the ground or weighs a ton, it can be picked up and taken. You are almost better off putting it in a couch cushion as a thief will take a safe knowing there are valuables in it. Remember that anything in your home is part of your home, even if it burns down.
Better: Safety Deposit Box or savings account
This one is better than the last because it gets that money out of your house where it is vulnerable. Bankers will tell you that they know there is a lot of money in safety deposit boxes. You can smell it in that room as the smell of old money is very distinct. Another place is your savings account at the bank. There is a problem with these two options though. The safety deposit box doesn’t allow for your money to grow. Every day your money is being eroded by inflation. Conversely, the savings account does make you some interest but it is not enough to keep up with inflation. Not only that, it is accessible from your phone, computer, ATM, etc. If you do keep it here make sure you have the willpower to not touch it or put restrictions on that account.
Best: Savings or Investment Account with a Different Institution
I have 5 accounts with 3 different institutions. One has my emergency fund and my day to day chequing account. Another is my business account, one I use for all things Budget Boss. Lastly, I have my investment accounts with my company and they are far, far away from my reach. I created this system for my money because I wanted some money I just can’t touch, only add to. That’s my TFSA and RRSP in my investment account. My emergency fund is near my chequing account in case I need some quick cash. I don’t use the savings account in that bank, some green bank, unless I absolutely need it. Built into my budget is money deposited into my chequing account so that every month my needs are met. I keep the business account separate because I want to keep track of it all. Three institutions, all with different purposes, working together to keep me happy. That’s my system, sounds complicated but it is really not.
The key is to be organized and truly understand yourself. Even if you have rock solid discipline I would always recommend having money somewhere out of reach. Out of sight, out of mind works believe me. My system works very well for me so find out what works for you.
Thanks for reading and tune in tomorrow for “Wednesday WTF,” my weekly rant on things that waste your money. Have a great day friends!
“Too many people spend money they earned..to buy things they don’t want..to impress people that they don’t like.” – Will Rogers
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Joseph James Francis is a Financial Advisor. You can find him on various social media platforms and at www.budgetboss.ca.