Everyone check your underwear drawers.
No, seriously. Do it.
In an article from the Wall Street Journal, the issue of savings is discussed. While more Americans are saving in today’s recession than they have in recent memory (some statistics found the savings rate pre-collapse was less than 0 percent), the new problem is how that money is being used after it is socked away for savings. In an attempt to give it a nice visual, the writer urges readers to look at savings like drawers in a dresser.
Particularly for those starting out, she suggests having an “underwear” drawer for an emergency fund and any high-interest debt (like from credit cards) that should be paid off. Once that is well stocked, move onto the retirement drawer where you should be contributing to an employer’s 401(k) plan or your own form of an IRA. Then, the “jeans” drawer, for things that’ll make you look good — a car, house, vacation, whatever it is that you want to strive toward.
I love this idea — while you shouldn’t literally save your money in drawers (or under mattresses, in an attic, an old pair of boots, or your nightstand), it is this type of tiered plan that will put you on the road to personal finance sanity in no time. To take the writer’s analogy further, these are the four drawers you I believe you should stuff with your savings (in order):
- underwear and sock drawer (emergency fund);
- winter sweater drawer (retirement … you know, nice, safe clothes that will keep you warm and comfortable for the duration);
- accessories drawer (for a car, house … the items that will give you options and make you look good); and
- date night drawer (for vacation, and those other events in life that you need a decent amount of cash in order to have a good time).
When you do dig into your accessories drawer, don’t callously throw away any loose change you may have stuffed into your pocket after picking up a pack of gum. Collecting coins to cash in later is one of the tips set forth in this post, among others, including using coupons, buying in bulk, and shopping when there are sales. The idea here is to begin good habits that will serve you well as you get older, get more established, and make more money. (Believe me, you will make more money one day, even if that day looks as far away as the Pittsburgh Pirates winning a world series.)
Come back here this upcoming Sunday for my tips to a successful — and cost-effective — grocery shopping excursion in my tip(s) of the week.