How to Pay For a Sports Car with Cash - (W6:D4) Debt Free Millionaire Podcast

Debt-Free Millionaire

Simplified Explanation: What is Savings? Savings is, of course, how much money you have stored to be used in the future. It can be saved in your mattress, in a box, or in your pocket, but most commonly, larger sums of money are stored in a bank. Savings is not something you grab from for any small thing you want, but rather money you accumulate over time. When you really need it, the money is there; when you really want something, the money is there; and when you just want a place to store excess money, such as when you are no longer paying off your debt, it is there waiting on you. Those who use it effectively save around 4-6 month’s worth of their monthly expenses, and don’t touch those funds. They also have a checking account, where money goes in and out all the time, while the savings account is for storing money over time.

Real Life: The more you save in real life, the more you can put away towards a rainy day. You should always have a small emergency fund, in case something unexpected occurs (and it will). But after you’ve saved about $1,000, all extra money should go to paying off debt, until it is gone. Then, all that money you were spending on debt can go towards living your life, and saving to build a bigger cushion, in case something unexpected was to happen in your life.

Where would you like to save your money? When you budget, save towards a rainy day, or some event in the future. Banks will allow you to have a single account, or dozens, each based on your priorities.

Do you want a sports car? Create a sports car account, and start saving towards that sports car every month, with an account titled “Automobile Account.” If something happens to the car you are currently driving, pull from that account and pay off the car repairs; the rest stays in the account until you can buy that sports car. If your old car breaks down and you need another car, take from your car account, and put that towards the newer car; the rest stays in that account until you have enough money to afford that sports car.

Do you want to go on a vacation? Set up a vacation fund and save towards that every month. In your budget, you are giving every dollar an assignment. If you use that money, then it’s spent that month; if any is left over, add it to this account. This allows you to save for a trip in the future. If the trip is a year away, estimate how much it will cost, and then divide that over how many months you must save the money; that is how much you will need to save, monthly, if you really want to go.

What if you have extra money? If your bank account has more than enough money for the event or sports car, then you may want to adjust how much you are putting in that account. You will also want to readjust it when that event is complete. A car account can stay active after you have bought your fancy sports car, but you may want to adjust it and allocate that money to other funds. In the end, all these accounts are considered “Savings Accounts.”

Savings vs. Spending – When you receive money from your paycheck, or are given money for any reason, the first thing most people want to do is to spend it. It is natural to want to spend when you have money given to you. The harder thing to do is to save it, but it is more enjoyable when you have money to spend in the future. Like one of the gurus I mentioned always say, “If you live like no one else now, later you can live and GIVE like no one else.” So even though you want to spend your money as soon as you receive it, if you want to have money in the future, the best thing to do is to save it. And when you are done with paying off your debt, you’ll have more to spend, and more to save.

Savings vs. Investing – When you have less debt, and more money seems to be collecting in your savings, it is very easy to want to spend more, or even save it in a bank account. But why allow the banks to make money off your money (by allowing others to borrow it)? Why not make more money with your excess money?! After you have accumulated 4-6 months’ worth of expenses in your savings (or however much makes you comfortable for if you lost your job or had an emergency), why not invest in something that may give you the true benefit of money - growth? Investing in mutual funds, an IRA, or a 401(k) is a great start. Most investments have a proven track record with their money, and should return you at least 10% interest every year over a 10-year span. We’ll talk more about this in the next chapter.