The only debt we have is a mortgage, but we have ratcheted up payments on it because we want to retire the debt as fast as we can.

Use the tax free savings account to stash it away. The withdrawal characteristics of the account will prevent you from touching that money prematurely (i.e. you have to jump hoops to withdraw, and jump hoops to put stuff back in).

And… use that in a real emergency and not for something that is a ‘want’.

We started paying our debts before we knew about Gail and we went completely overboard. We didn’t have a life and we didn’t have an emergency fund. We did pay down most of the debt but it was hard and miserable. Then we found ‘Til Debt.

The first month we used the jar system we spent every penny from all the jars. The second month we cut all the jars back because we figured that we had over filled them and that we could do with less and put that extra money towards our debt. Well, of course we used it all and even ran short. The third month we went back to the original amounts and used it all. Towards the end of the month we ended up having to use the last of our grocery money to help pay for a prescription because the “other” jar. was empty. We were lucky because we could just eat at my Mom’s. All this to-ing and fro-ing and going back to the stealing from Peter to pay Paul just made me a twitchy mess.

For the fourth month we created a new jar that we called the “transfer” jar. We put $20 into it. The transfer fund was money that was to be used when we ran short in any of the other jars – could be transferred where ever it was needed. Just having that little security blanket lessened my anxiety considerably.

As we got better and better at controlling our spending we started to have money left over in nearly all the jars, nearly every month. Our first instinct was to pay this extra money onto our debts but then we decided to set up a second set of jars. We put the left over money into these jars and within about a year we had a whole months worth of money already sitting there. We also started to put some of the extra funds we earned – overtime, tax refunds, income from garage sales, birthday and Christmas cash gifts – into our chequing account and within two years we had a whole months worth of fixed expenses saved up. This was the single most effective way of calming my anxiety that I have found.

We were no longer living pay to pay but were actually ahead of the game. Now at the beginning of every month all the money that we need for our fixed expenses and for the jars is already sitting there. The money we earn during this month is actually for next month. This makes it completely easy to plan ahead and not get surprised. I am never anxious now because just as soon as the bills come in they get paid because the money is already there. Truthfully – and I know that Gail would not approve – but if I had to do it over again I would actually use borrowed money to set us up with this “month of expenses already in the bank” system. I would rather pay the extra interest than live through the anxiety again. But of course you have to be completely disciplined otherwise this wouldn’t be a tool to help you get straightened out but just another silly mistake and stupid debt.

When the caca finally hit the fan we went nuts paying off our debt and got caught with an emergency (and still no funds) just as we finished paying everything off so we ended up back in debt. After this we started with 10% savings to build an emergency fund and start putting some retirement backup funds aside. We were lucky for a while and built up about 3 months worth of emergency backup but emergencies just keep showing up – and they seem to be herd animals that breed like bunnies.

What we have now learned is that you have to keep building that emergency fund and that it has to be separate from your retirement plans. You can never be too prepared for emergencies or just the odd things that happen in life.

Gail’s budget calls for 10% for savings and 15% for debt repayment. Once the debt is gone your whole way of life changes. We now put 10% aside for emergencies. The emergency fund is divided into two parts – monthly backup and real emergencies. Once we have a years worth of monthly expenses set aside we will just keep building the real emergency fund.

From the 15% set aside for debt repayment we now put 10% into retirement. We have a lot of catching up to do. We put the remaining 5% into planned spending. We don’t have any weddings or education left to plan for so this is mostly a fun and stuff account now.

Altogether we are saving 25% and I honestly feel that this is not an outrageous amount. Just wish we had had the sense to live within our means and save this amount right from the beginning. I shudder to think how much we paid, threw, gave and pissed away in interest over 25 years.

My advice (if asked) to young people would be to pay off your debts and get some savings as fast as possible by starting out living 25% below your means – your expenses should not be more than 75% of your net income. Do the math before you commit to new cars, furniture, houses, vacations etc. If you have to work a second job for a while and do without some of the perks it will really be worth it in the end. It may seem like a lot to be socking away when you want to get out and live life but you would be amazed at how easily you adjust to living smaller and how happy it makes you to see your security net getting bigger and bigger. Having money in the bank, no debts and cash to pay for whatever you chose to buy or do is real freedom. A trip on a cruise ship floated on a credit card is an invisible anchor that will drag you under. Maybe not this year but give it time. Debts also tend to herd together and breed like bunnies.

Planned Spending IMHO is above and beyond the 10% savings guideline. I guess planned spending gets worked into the various existing budget categories: like Vacation, Entertainment (for that huge tv or concert tickets), or clothes (like back to school outfits). You may have to add categories for other planned spending items like a house down payment or a new (or new to you) car.

Hope that helps! Congrats to everyone who takes that first step to START saving! Woohoo!

Thanks!!

I agree, that really, people just need to start saving – never mind how much, just get in the habit of doing it.

I personally stash about 25% of my pay away, that said, some of that ’saving’ is actually planned spending. I have a house down payment fund, an emergency fund, a Christmas fund, and my RRSPs. Each account get’s $50/bi-weekly except for the house-fund which gets $150/week (my partner and I rotate).