If you want to save money for specific goals, you might want to consider managing your money more like the government.
What do I mean by that? After all, many governments are faced with big budget deficits right now – the federal government is facing massive debts. We can’t all afford to run our finances like that!
So when I say, “manage your money like the government,” I don’t mean, “run up big debts.” But there is one particular government finance idea that could be useful to you in saving and spending your money: dedicated accounts.
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One of the principles of government money management is the idea of “dedicated funds.” Certain government money has to be spent only on certain activities – health care, education, etc. – and these government programs are funded by specific types of taxes. Even though the government has a lot of money in its budget, most of the money is specifically assigned to be spent on certain goals.[Check Your Credit: Don’t Guess. Know.® Get your free credit report and score. No credit card required.
What does this mean for you? You can take a cue from the government – and start taking better control of your finances – by setting up multiple savings accounts, each with a specific purpose.
For example, instead of having just one savings account, you could open three:
1. Emergency savings. This is your “don’t touch” money – money for real emergencies like a lost job, unpaid medical bills or a broken down car. You should ideally keep six months worth of take-home pay (or more) in this emergency savings account.
2. Vacation. This is your “medium-range” savings account – if you want to go to the Caribbean on spring break next year, put some money in this account. If you want to have a special birthday bash with your closest friends, start chipping in $30 a month and you’ll have a nice pile of cash in time for the big day.
3. Fun Money. This account is for short-term splurges and special occasions – anything you want to buy at the store, nice dinners at your favorite restaurants, or personal pampering like massage therapy and spa days. By creating a special savings account just for these “short term” fun purchases, you can enjoy your money without breaking your budget.
Having dedicated “pots” of money for specific purposes can be incredibly empowering. You don’t have to feel guilty about spending money if you’ve saved for it and you can also have better control over how much you’re spending (and saving) for each of your short-term, medium-range and long-term goals.
It’s a powerful feeling to go on vacation knowing that your hotel, airfare and food are already paid for. It’s wonderful to buy things for your kids with money that you’ve already earned and saved. You can truly enjoy your money – and enjoy everything that your money can buy – without the fear of debt hanging over your head.
Just like the government funds specific programs with specific accounts, you can fund specific goals and have more fun in your daily life by using specific dedicated savings accounts.
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Who knew that borrowing an idea from government finance could be so fun?
Whether you’re in a personal finance emergency or just looking to better organize your “fun money,” Quizzle.com offers great tools and resources to help you manage your personal finances, learn about your credit, get out of debt and create a more confident financial future.
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Should You Manage Your Money Like the Government? was originally featured on Quizzle Wire
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