Is Your Savings Account Missing Thousands of Dollars?

Your relatives and friends brag about how much they saved on Black Friday or at post-holiday clearance sales. A co-worker shows off new tech gear bought from a daily deal site that saved him a couple of hundred bucks.

You can’t help telling your non-frugal friends how much you save every month by shopping with coupons and using online rewards programs. Meanwhile, your brother crows about the money he saves by cashing in rewards credit card points.

Nice! But …where’s that money now?

Unless you removed it from your wallet or checking account, the “saved” funds probably melted into your everyday budget.

Or maybe you developed some unsavory habits of reasoning, e.g., “These boots/golf clubs were marked down by $50. That means I have an extra $50 to spend.”

It’s not savings unless you save it

My daughter belongs to several rewards programs and uses the points both for everyday needs (toilet paper, shampoo) and special items (books, holiday gifts, small treats for her husband). Abby recouped about $700 that way last year.

The difference between her and those other folks? She knows where all 700 of those dollars are – because she actually saved them.

“Every cent pads the emergency fund,” she wrote on her website, I Pick Up Pennies.

Each time she spends rewards points, Abby transfers their cash equivalent from checking into an online bank account. In other words, she puts the money where it can’t be easily accessed so it doesn’t get absorbed back into her everyday budget.

Ready, set … save!

Want to get the full benefit from money you “save” via coupons, sale prices, rewards programs and the like? Open a dedicated account of your own, even if it’s just a sub-account at your existing bank or credit union. (For example, my online bank account has an offshoot called “New Car Fund.”)

A good way to start is to build an emergency fund, a chunk of cash to have on hand in case of problems like car trouble or (heaven forbid) a layoff. While some money pundits say you need six to 12 months’ worth of expenses saved, that may be setting the bar too high.

If you’re already on a tight budget, it can be hard to save at all. Being told you should already have saved enough to live on for a year is pretty depressing.

It might even make you think, “Why bother? I’ll never be able to save that much.”

Instead, focus on the $500 that personal finance author Liz Weston suggests as a good starter fund. It will cover plenty of common emergencies (blown tire, medical co-pay for your kid’s strep throat) and it’s a little more realistic.

In a post on her website called “Why You Want an Emergency Fund,” Weston acknowledges that consumers need to prioritize. Paying off high-interest debt and saving for retirement are more important than pumping up a cash cushion. But having even that starter EF will “help you sleep better at night,” she notes.

Children aren’t cheap

If there’s one thing we parents learn early on, it’s that children cost more money than we could ever have predicted, and in ways we could never have imagined.

Field trips, school pictures, sports fees, shoes outgrown in a month, summer camp physicals, over-the-counter allergy meds and other minor expenses add up quickly to major budgetary headaches. So set up a sub-account at your bank or credit union, name it “Who Knew?” and deposit all saved funds there. The next time Junior leaves his spring jacket on the subway, you’ll be ready (if not happy) to replace it.

Your kids won’t be babies forever: In 18 short years they’ll be thinking about college or trade school. If you’re in a good place financially, perhaps you’ve already set up a college fund.

Not able to do that? Start a “Life After High School” fund and put your saved money in it, along with anything else you can spare. Prepare to move money out of it before freshman year of college, though, for items like taking the SAT (and maybe an SAT prep course or tutoring ahead of time), college application fees and, maybe, a long drive/short flight to that dream school a few states over.

Even if all you end up with is a couple of thousand bucks on graduation day, that cuts down on the amount of student loans your kid will have to repay. Remember, any contribution you make also cuts down on the likelihood that Junior or Sister will boomerang back home after finishing. This in turn will cut down on your grocery and utility bills, and possibly on the number of headache medicines you consume.

Bigger-ticket goals

It’s a good idea to drive your cars as long as you can safely do so, since repairing an older car is often still more cost-effective than buying and insuring a new one.

When it’s finally time to buy a new vehicle (or a reliable used one), wouldn’t it be great to have a huge down payment in hand? Set up a “New Car Payment” sub-account and squirrel away all funds you save via rewards credit cards or whatever.

Suppose you’re thinking really big, i.e., a home of your own. Every dollar you add to the down payment is a dollar closer to your dream. Put your saved funds into that someday-home dream.

If you’ve already got a home and are jonesing for some upgrades, don’t just dive in. Research contractors very carefully (including following up on those references), look for ways to reduce remodeling costs, and keep in mind that certain upgrades don’t make much difference in your home’s value.

And while you’re doing all that? Start a sub-account called “Nicer Digs” (or even just “Bathtub Without Huge Rust Patches”) and put your saved funds there. No matter how carefully you’ve budgeted for a remodel, you’re likely to need just a little bit more.

Any dream will do

Your saved money can go toward the practical need or pie-in-the-sky desire of your choosing. Some possibilities:

• Entrepreneurial dreams. Some businesses can start up on a shoestring. But you do need some working capital.
• Tech fund. Drooling over the latest iteration of phone or tablet? Set aside funds and upgrades will be less painful.
• Pet fund. You want a dog or a cat or an Australian bearded dragon. Add up how much it will cost to buy, vaccinate, feed and otherwise care for this critter for the first year. After you’ve obtained the pet, keep feeding that account because costs won’t go away; vet care, in fact, is likely to go up as the pet gets older and needs treatment for age-related conditions.
• Retirement. Compound interest is your friend. Every dollar you put away now will have a lot of company by the time you’re 66.
• Vacation. You probably won’t be able to pay for a European cruise with just the proceeds from rewards cards and coupon use. But these contributions will make the total amount needed add up that much faster.

Whatever your dream, keep repeating to yourself: It’s not savings unless you save it. Then get to work.