The last seven years of my life can pretty much be summed up in the phrase, “Learn from my mistakes.” I’ve made a career now out of helping others navigate financial messes simply because I’ve had so much experience cleaning up my own.
And now for the latest chapter, which will be presented here as things for you to do, simply because I wish I had previously done them myself.
The prudent see danger and take refuge, but the simple keep going and suffer for it. —Proverbs 27:12, NIV
Divide your investments among many places, for you do not know what risks might lie ahead. —Ecclesiastes 11:2
1. Split up your money.
I’m totally deviating from my own teaching here to keep things super simple when it comes to bank accounts, but do not have all your money in one account or even all at one financial institution. I’ll get even more specific here: Have a checking and savings at a major national bank for convenience sake, and a checking and savings at a local credit union for safety’s sake.
Here’s why: If you are the victim of identity theft, or your debit card number gets stolen, the thieves can clean out that account in minutes. If you have all your money in that one account, they’ve got all your money. If you have your money spread out into four different accounts, they can only get some of your money. Big difference. Yes, I know there are fraud protections that require the banks to return your money in the event of fraudulent charges. But that can take days or even weeks.
Here’s how I recommend splitting things up:
Mortgage and car loans: Go with your local credit union. The rates are better and if you lose your job or otherwise need some grace, you’re most likely to get it here.
Credit union loans are easy, affordable and ethical (you typically don’t see credit unions peddling sub-prime loans and other nonsense.) Plus, you’re supporting a local business. If you have your home and car loans elsewhere, I definitely recommend that you go to the trouble to refinance with your local credit union. You’ll save a ton.
Local credit union savings: Longer-term cash savings, money you don’t plan to touch unless the sky is falling. The bulk of your non-retirement savings should be here.
Local credit union checking: Mortgage payments and car payments should be auto-deducted from this account. Have enough direct-deposited into this account each month to cover the house and the car, plus a little extra. More on that later …
National bank savings: Keep $1,000 in here as an emergency fund / cash cushion. If the transmission goes out or you need a plumber at 2 a.m. on a Saturday morning (don’t ask) you don’t have to worry about going into debt to handle it.
National bank checking: This is where your “spending money” goes. Like Dave Ramsey, I recommend the cash thing, but who am I kidding – none of you do that.
So if you need to go crazy with your debit card, keep in this account the money you have allocated as your running around money. Gas, groceries, clothing, eating out, jaunts to the mall and all the other monthly randomness comes out of this account. Keep tabs on it so you don’t overdraft it, but of course you should do that with all your accounts anyway.
Here’s how to make it all flow:
2. Change your direct deposits.
You probably have your paychecks going all to one account. Well, stop it right now. Once you’ve done the refi at your local credit union (because you already started that process as soon as you read the section above, right? Right?) Add up your mortgage payment and your car payment and have that amount (round it up for safety, to the nearest hundred, at least) deposited directly into your credit union checking account. Bam. Your two biggest monthly obligations are taken care of.
If you don’t have $1,000 saved up, that should be your first savings priority. Get that money in the national bank savings account as fast as you can. That’s your first line of defense against financial setbacks, downfalls and all-out catastrophes. You want that money accessible, so you can get to it quickly if you need it. (Please have the discipline not to consider a new TV as a “need.”) If you don’t have this money set aside yet, this is where your next allocation goes from your direct deposits. Put as much as you can in here until you hit $1,000.
Decide how much you need for other bills and regular monthly expenses, plus “blow” money. Monthly giving, utility and cell phone bills, gas, groceries, girls’ night out, clothing, kids’ lunches, add it all up and give yourself a monthly budget for these items. Have that amount direct deposited into your national bank checking account.
Whatever is left over goes into the credit union savings account. Once the national bank account hits $1,000, have that money going into the credit union instead. If you have to use the $1,000 for an emergency, put it back out of your monthly budget rather than continuing to mess with your direct deposits, because that’s no fun for anyone.
3. Have cash at all times.
I did not do all this stuff until recently. And Scott’s debit card number was stolen and we got hit for thousands of dollars in less than two hours. Not fun. But the first thought that went through my head was, “Well, at least we have cash on hand.” I knew that no matter what the bank decided to do to help us and when they decided to do it, I would be able to put gas in the cars and food on the table. (Well, we have plenty of groceries on hand at all times too, but that’s a blog post for another day.)
The ability of a thief to rock our world was limited because we have cash. On hand. All the time. No excuses. That money doesn’t go to the pizza man when our restaurant budget has been tapped for the month and I’m too tired to cook. Nope. I put my big girl panties on and I cook anyway.
If your expenses exceed your income and you’re reading this and thinking “This won’t work for me!” you have a different set of problems altogether. Change your spending. Cut the cable and the cell phone. Stop eating out. Bring your lunch to work. Go longer between haircuts. Clip coupons and cut your grocery spending. You can do it. If you can’t, ask people who are good with money to help you. I promise you that you will find someone to help you with this if you ask around. I know because I wrestled with this myself for years, and some really nice people helped me.
Get after it. You can do this. And you will be so glad you did!