Top-down drawer approach to savings

Now that all of us are saving more, how are we going to put that money towards its best use?

An article not long ago in the Wall Street Journal (the article is by Karen Blumenthal and was published Sept. 23, 2009) suggested a bedroom dresser drawer approach.  Just as you have drawers for socks, underwear, etc., design your savings with drawers in mind.

The most important drawer is your emergency fund drawer. Have a minimum of 6 to 9 months of spending in that drawer.  If your job is in immediate danger of disappearing, you may want to increase this to a year or more of spending.  Then, just don’t touch it.

Other drawers you may want identify and fill are things like retirement (make sure you are saving the maximum towards any company patch), home repair, car replacement, college fund, vacation fund, and even a splurge drawer.  As you fill these “drawers”, only pull money out for the identified purpose of that drawer.  You may want to create a priority system of how you fund each of these drawers (put the most in the retirement or college drawer and only a little in the splurge drawer).

This system will hopefully spur your savings, and give you visible progress towards your goals. And if you only spend from the account on the identified goal (and put off buying something until you have the required amount of money in the drawer), you might be able to avoid using the credit card for things like vacations or other splurges.

One way to create these savings drawers is to open separate savings accounts at Technology Credit Union.  Just like the Challenge Savings account you have hopefully been contributing to, you can create secondary savings accounts with particular goals in mind.  And when you have accumulated enough, you can take that money and put it into a CD to earn a higher rate of return on your savings.

So identify your goals, and start stuffing those savings away in your own saving drawers!