Military Saves: Save Before You Spend

March 01, 2013 | Kate Horrell

Friday of Military Saves Week 2013 is Save for A Large Purchase day.  I love this day, because I love the idea of saving before you spend money.  It is so much better than buying first and paying later, despite what retailers and credit card companies would like you to think.

We all have large expenses, and they usually are not surprises.  Large, planned purchases fall into three categories:  short-term, mid-term, and long-term.  Short-term usually means within the next year, roughly.  This might include creating an emergency fund, paying off debt, or preparing for a move.  Mid-term would be things be longer than short-term, but less than 5 years. This could be a new car, a house, or a really grand vacation.  Long-term goals are expenses that you anticipate in more than five years, such as a child’s education or retirement.

I like to make a list of my ideas, and then categories them into time groups.  From there, I make SMART goals that help me figure out how to fund these expenses.  Even when it is shocking (I need to save how much every month?), it is a useful way to get realistic information about how much you need to save.  Shock is good, too, if it prompts you to adjust your goals or your savings.

Once you’ve figure out how much to save, you need to know where to put the money.  Savings for short-term goals can be saved in safe, easily accessible accounts such as savings or money market accounts.  If you are “saving” to pay off a debt, put the payment directly towards the debt and don’t save it anywhere.  The 12 or 18 or 24% you’ll be saving in interest is much more than anything you’ll earn by keeping that money aside.  Mid- and long-term saving can go into slightly more aggressive tools, such as mutual funds.  Take full advantage of any tax-advantaged retirement savings accounts – they are a huge benefit.

Saving before you spend is an amazing tool for maximizing your spending power and providing financial security.  What do you think?