Managing your money effectively can be a real challenge. Good spending habits decrease stress, gain control over finances and build solid credit. So why do so FEW people manage their money well? Because budgeting, like dieting, implies depriving ourselves. We may not know where our money goes, but we know that it doesn’t go far enough!

But once you learn to manage your money, you’ll enjoy the sense of independence that comes from being in control of your money. Have you ever asked yourself, “Where does it all go? How can I budget so I’m never short of money before my next paycheck?”

The first step to managing your money is to understand the “Three R’s” of money: Responsibility, Reality and Restraint.

1. Responsibility: Being responsible with your money means watching where you spend it. Going to the movies and spending $50 dollars is not responsible. On the other hand, a responsible person would take that same $50 and spend $30 dollars at the movies and put the other $20 into their savings account at the bank.
2. Reality: Unless you have a multi million dollar inheritance and you can buy everything you want, you must spend within a budget. You must realize that you can earn only so much money at your present job. Knowing how much money you can earn should help you control your spending.
3. Restraint: This means having the discipline to take control of your emotions before you spend. Let’s say that you go to the shopping mall with your friend intending to buy a new pair of shoes. Your friend decides to buy a new outfit. Because you’re in control of your money and emotions, you exercised restraint by only buying a new pair of shoes and not a new outfit too.

What does it mean to “save money”?
Saving your money is another way of saying “limit your spending.” This doesn’t mean giving up all the things you need (like food) and enjoy (like movies), but to set aside money to have at your disposal. It takes discipline to put money away regularly, even if it is only a small amount (like $50 each paycheck).

A savings account is an agreement between a bank or credit union and a depositor (you). You deposit your money in the bank or credit union for the purpose of accumulating interest and safekeeping. A traditional savings account, sometimes called either a statement account or passbook savings account, allows you to deposit and withdraw money from your account at any time.

Open a savings account
Choose carefully where to save your money. For convenience, choose a financial institution that has many locations within your community and your state. There are the two basic financial institutions that offer savings accounts:

• Banks: A bank is a business that both receives and lends money. In order to lend money to help someone buy a home or car, a bank must first accumulate deposits (money) from people who wish to save their money at that bank. A deposit, for example, is when you take a $500 paycheck from your job and a $20 bill (cash) and place the total amount ($520) into your savings account.
• Credit Unions: A credit union is a financial institution owned and controlled by the people who use its services. This is why they operate the credit union in a very prudent, frugal manner. Credit unions serve groups that share something in common, such as where they work, live, or go to church for example. Credit unions exist to provide a safe, convenient place for members to save money and to get loans at reasonable rates.

What a savings account can offer you
There are two valuable things that a traditional savings account offers:

• Safety: A traditional savings account is a safe, convenient and affordable place to save your money. It’s much safer to keep your money at a bank or credit union than to keep a large amount of cash hidden in your home. The federal government also insures your money up to $100,000 per account. No matter what happens, you can’t lose your money when it’s safely in a bank or a credit union.
• Interest payments: Banks and credit unions both pay you, the depositor, a fee, called “interest,” in exchange for you allowing them to keep your money (like in a savings account) with them. The more money you put into your savings account earning interest, the more interest you’ll earn. The higher the interest rate they pay you on your money in your account, the more money you’ll earn on the interest.

Amount of money to save
Every person has different income levels and different savings goals. As a rule of thumb, you should try to save a minimum of 5% from your monthly paycheck and put it into your “Traditional Savings Account.” 10% should go into an “Emergency Fund Account.”

An Emergency Fund Account is the same as a Traditional Savings Account. The only difference is that you will label the account “Emergency Fund Account.” You never know when an emergency might strike in the event of (loss of job, car repairs, natural disaster, illness, injury, etc.) The most common emergency that occurs is a loss of job. For this reason, we recommend that you have at least “three times your monthly expenses” saved in this account.