Saving: Keep Some for Later

Lucy is twelve years old. She lives in Riverton with her parents and her brothers, Jack and Max. Lucy rides an old bike to school, but this spring, she sees a bright green bike in the window of a shop on Main Street. It has gears, a bell and a basket. The price tag says $120.

Lucy has $30 in her piggy bank. She also earns $15 every week from babysitting and pocket money. She decides to save $10 of it each week for the bike, and she makes a plan with Dad at the kitchen table.

Dad says, "Let's check the numbers. What is your goal, and when do you want it?"

Lucy says, "$120 for the bike, in about three months."

Dad writes it down. He says, "You have $30. You need $90 more. If you save $10 every week, how long will it take?"

Lucy counts. She says, "Nine weeks. That is only about two months!"

For a month, the plan works well. Lucy puts $10 into her bike envelope every Friday, and she has $70 by the end of the fourth week.

Then, one morning, her old bike gets a flat tire on the way to school. The repair shop charges $20. Lucy needs her old bike to ride to school every day, so she has no choice. She takes $20 out of her envelope, and her savings fall to $50.

Saving for a Goal and for Emergencies

Saving means setting aside part of your income for the future, instead of spending it. People save for two main reasons. The first is a goal, like Lucy's bike, which is something you plan and want. The second is an emergency, which is a sudden problem that you did not plan for, like a flat tire.

Lucy sees what happened. She had no money set aside for emergencies, so she took it from her goal. Dad says that many families keep two separate envelopes or accounts. One is for goals. The other is a small emergency fund that is never used for fun.

The total in Lucy's envelope is now $50. She needs $70 more, so she needs seven more weeks, not five. Her plan took longer, but she still reaches her goal.

Back to the Kitchen Table

Lucy decides to open a second envelope. She names it "Emergency" and puts $5 in it every week, and she still puts $10 in the bike envelope. She feels calmer.

Seven weeks later, she walks into the shop with $120. Lucy says, "I saved for it, and I was ready for the surprise."

Dad smiles and says, "That is the best part of saving. It gives you choices."