Do you want to know the secret to getting rich?
Well then today is your lucky day, because the answer has actually been right in front of you this whole time.
So what it is?
Don’t feel silly if you didn’t know – I was once there too.
Alright, Alright… the secret to getting rich is…
Open your own bank and charge every single client a whole bunch of NSF fees for funds that never cleared because there just wasn’t enough money in their accounts instead of just simply declining the transaction and telling the customer to add more funds to the account.
*gasps for air*
The key to success is to be sure to do this to every customer and you’ll be swimming in cash.
Oh were you expecting something realistic?
Ok fine, how about one step of the actual secret of getting rich?
I call it…
The Cushion Effect
In case you haven’t already noticed, I truly dislike fees – especially an NSF fee.
An NSF stands for Non-sufficient Funds (NSF).
So, in other words, an NSF fee is; you’re being charged because you lied about the number of funds you have in your account and now you should pay a relatively large fee for that because why not? (Bank logic)
*gasps for air again*
Okay. I’m good. You good? Good.
Back to this awesome thing we’re calling The Cushion Effect.
Consider this to be the first step of building wealth, hence the intro.
What the cushion effect essentially does is act as, well… a cushion for your finances. It’s to protect the fall of your accounts should anything unexpected happen.
Commonly confused as an emergency fund, the cushion is to be kept in your primary bank account – although not exclusive to.
Emergency funds are typically kept in easily acceptable savings accounts for a rainy day.
So where does the whole NSF fee rant come into play?
Let’s talk about a hypothetical situation that once wasn’t so hypothetical to me.
You got yourself a new car; making your bi-weekly payments like the good customer you are. Along comes the 15th of the month and the next payment is due to come out. However, without realizing, the bi-weekly payment lined up perfectly with your bi-weekly gym membership withdrawal. Classic scenario of “too many bills to remember”.
Your car payment is due for $90, and the gym membership is due for $20. Each merchant attempts to withdraw their funds from your account, but low and behold, one of the two is not successful in doing so. The reason why is because you had only planned for the car payment to come out – it happens.
Now to make this situation even more frustrating, let’s just say it was the gym that wasn’t able to withdraw funds.
Well, guess what? Remember that lovely NSF fee we were talking about earlier? You just got hit with one for having an insufficient amount of funds within your account to cover both withdrawals.
Here’s the kicker; the NSF fee charged to you is even greater than the payment that was due to come out. So you can see now why I get sensitive about this fee.
NSF fees are charged between $25-$45 per bounced transaction. This means that along with the payments you have to make, you now have to pay up to an additional $45 to the bank for a simple little oversight. Fee amounts vary per bank.
Here’s some good news, if you’re reading this because you were just charged an NSF fee, you can call your bank and ask them to kindly credit you back for it due to it being a mistake. Chances are the bank will value your relationship with them and do so. You might be able to get away with it the second time as well. However, should it happen again, they’ll notify you they’ve already credited your account in the past and can no longer do it.
All of this could have been avoided had you kept a cushion fund in the account. This would allow the gym membership to withdraw their funds leaving you to replenish only $20, instead of an unnecessary $65.
Pesky, pesky, bank fees.
What’s a good amount to save for your cushion?
I’ve always found $1000 to be a sweet spot, but sometimes even $100 can go a long way.
This is one of those times.
Of course, this really depends on the number of payments you have coming out and the size of those payments.
One thing you can do to better understand how much to save for your cushion is to calculate all your monthly expenses excluding rent, and save one month worth of the total.
We exclude rent because this is not your emergency fund. Remember the emergency fund is your six-month savings should you ever lose your job, or run into any other issues. That’s step two to the secret of getting rich.
In your emergency fund you’ll include your rent/mortgage payments.
The good thing about your cushion fund is that it serves more than just saving you from those ugly NSF fees.
It can cover you in more immediate situations as well.
Take the following as some situations where the cushion can come into play:
- Your car breaks down
- Plumbing issues – those darn tacos
- One-in-a-lifetime deals
These are just some very quick-fix situations. Also, one-in-a-lifetime deals might not be top of your list. But then again at other times you just can’t say no to 50% Nespresso machines – this really happened to me.
I’m sure I’ve bored you enough with all the hypothetical situations, and you probably get the whole point by now. Anything else is really just ramble in it’s finest form.
So how do you save more money to build this fund? Here’s some help…
5 ways you can save more for your cushion fund: Step one to getting rich
Getting the cushion fund built up should really be done as quickly as possible. Anything can happen at any time. Try to aim between 1-3 months to get the fund up.
1. Cut your expenses for the month, and boost your savings allocations.
This is the most effective and rapid method to building the fund. Not going on a shopping spree at the grocery store, cutting down on you’re daily coffee, and maybe even canceling your subscriptions for just month could prove to be beneficial when it comes to having extra money.
I’m a firm believer in finding alternatives to cutting out the good things in life when saving money, but we’re talking just a short period of time.
2. Hold off on debt pay-downs
If you’re allocating more money than you need to your debts because you want to pay them down, then good for you! But for this short period, try making minimum payments on your debts, and allocate the remaining amount to the cushion fund.
Although this can seem somewhat counter-intuitive due to interest payments, without the cushion fund you could possibly turn to your credit cards for that emergency payment. This could result in more debt down the line, which would be far more costly on interest than this small hit.
3. Work overtime
Picking up a few extra shifts or staying back longer hours might sound like a bit of a drag. But as mentioned many times, this is just for a short period of time and will pay off greatly when you’re all saved up. Besides, your boss my just notice your hard work and that’s good for you… you’re welcome.
4. Tax refunds
Maybe tax season is right around the corner. You’re just in luck! Use your tax refund to push money into the cushion fund. This is the easiest method of all, and can really give you a good boost without having to do any of the above.
But always humble yourself here. Getting rich doesn’t start with a tax refund.
5. Sell some of your stuff
Somethings laying around your house haven’t been touched in a while. Keeping them really is considered hoarding at this point. Try to see if there’s value for the unused items in your house, and earn some cash for them.
This tactic actually boosts your entrepreneurial traits up. I’ve read on and watched many top millionaires who started making money early in life by selling their own goods to others. So go and get your hustle on.
Always remember my rant about NSF fees should you ever forget the importance of the cushion fund. Always remember how frustrating it can be to pay more than double for your gym membership just because you made a silly little mistake!
The secret to getting rich is not something that will get you rich overnight. Anybody successful will tell you that, which I know you’ve heard before. These are essential steps to actually get you to the level of success everyone dreams of.
It all starts with a small savings account that has a ripple effect over all your other finances.