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Building Savings Through Trust and Community

My wife and I were discussing a recent article. The article shared some of the unique ways families were able to save money. I shared with her one of the ways my grandmother had saved money in the Caribbean island of Trinidad and Tobago. She called it “sou sou” (check out this Essence Magazine article about it). The term and method I’ve learned came from the Yoruba people of western Africa. It was brought to the Caribbean by west African slaves. The method is not widely known in American culture. However, the concept is being practiced by many ethnic communities within the United States. Some practicing groups include Caribbean Americans, Asian Americans and Jewish Americans. Sou-sou is a savings club where each party pays an equal amount of funds into a collective pool. Each person then receives the total amount of the pool on a rotating basis. Payout schedules are set for either a weekly, bi-weekly, or monthly basis.

My wife, a business executive and the great granddaughter of sharecroppers from Louisiana, had a puzzled look on her face. I could sense something going on in her mind. What followed made it very clear of what was happening. She mentioned how deprived she felt that this knowledge was never shared within her ancestry.  She also felt that the knowledge would have made a significant difference in the lives of her family. Considering the large wealth disparity between the majority population and the descendants of slaves, I tend to agree. Our discussion led to a genuine sense of purpose that we should start a savings movement. We scheduled a family conference call and not long after started a family savings plan. A total of 15 individuals are participating.

The three things needed for a savings plan to work are trust, consistency and community. Traditionally, groups that used this savings method operated outside of banking systems. In some cases because banking systems were not accessible or available to them. What’s amazing about these groups is that for them, integrity and honor still matter. In these communities no one wants to risk getting a bad name or reputation. The method is a hassle free, cost effective way to not only save money, but raise capital to start a business as well. The savings concept is so rooted in some Asian communities that according to a study by UCLA sociology professor, Ivan Light, “75% of the members of the Korean American Garment Industry Association belonged to or had a family member belonging to a savings club or kye. And more than 36% said that at least part of their start-up capital came from a savings club or kye.”

Why should you take part? I like to think of this as a “NO INTEREST” loan of sorts. Instead of using a credit card or installment loan to borrow money, you have the benefit of receiving a lump sum of money without fees. For instance, if you were trying to save up $3K at the same pace of $250/month. How long would it take you to do so? Well, of course the answer is 12 months. But in this model, if you are the 1st person to receive the pool it will take you 1 month. If you are the 2nd person, it will take you 2 months…and so on. Only the person in last place will take 12 months to collect the pool.

Here’s an example of how it works.

Let’s say there are 12 participants each contributing $250 per month.

Month 1 = $3,000 in the pool

Recipient #1 gets the first $3,000 round (and can place in savings, pay off a bill, or pay cash for something they need, etc.

Recipient #1 (like everyone else) continues to pay $250 per month.

11 months to go…

Month 2 = $3,000 in the pool

Recipient #2 gets the $3,000 and continues to pay $250 per month for another 10 months…. you get the idea.

Saving money aside, one of the key benefits here is being able to build a strong sense of financial trust and community with those closest to you. For our family, we saw it as a great opportunity to reconnect and help each other.

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How to get out of debt and save

For anyone trying to get out of debt and save, finding ways to do both effectively is a major priority. If you’re opting to do it on your own, you must be both disciplined and creative. One do- it- yourself method involves reviewing your budget to create some wiggle room or cost savings which can then be applied towards your debt. The cost savings can help create what is known as a “debt reducer effect” What is a debt reducer effect? A debt reducer effect is simply the systematic application of funds saved from renegotiating your monthly expenses, which will be directed at paying down your debt. Here are a couple steps on how you can get out of debt and save money while on a budget.

Get out of debt and save through budgeting

The first thing you’ll need to do is review your budget by revisiting each line item. Take a critical look at where you may be able to save money. That’s correct, save money. The goal is to squeeze as much cash out of your existing budget to create a reasonable monthly amount you can apply towards your debt. I know this sounds virtually impossible. Keep in mind that everything is negotiable. This is where the rubber meets the road. Consider this scenario: You’re the CEO of “You, Inc.,” and “You, Inc.,” is in trouble. You, Inc., has been operating in the red for a few years and the time has come to make some tough decisions. Ultimately, the company must do some significant cost cutting or risk losing everything. What do you do? Well…you’d take out the hatchet and do what’s necessary to avoid losing everything. Of course, you’d weigh the pros and cons on which items must go, which is easier said than done. The bottom line is it’s not supposed to be easy, but as the CEO you have to make the tough decisions. Much like this CEO scenario, getting out of debt on your own will be one of the toughest things you’ll ever have to do. As the scenario suggested, if you don’t cut expenses you could possibly lose everything. Here are some suggestions on where you can begin to get out of debt and save.  

Renegotiating expenses to get out of debt and save

With the everything is negotiable mindset, begin to look at your monthly expenses. For example, some of your larger monthly expenses include housing expenses, rent or mortgage payments. These are contractual obligations and will not change during the life of the contract, however, upon the expiration of your rental agreement you could consider moving to a less expensive apartment to save money, (until your debt is paid off).  If your mortgage rate and monthly payment are high and you’re able to refinance your mortgage for a lower rate and payment, you’d be able to save on that as well. You can also look at your monthly auto payment to see whether it may be in your best interest to sell your car, trade it in or perhaps refinance your auto loan (if you are able to and, it in fact saves you money). Consider that you could be saving money on monthly auto insurance payments also. Do the math. See whether selling your car and using public transportation—or ride-share services such as Uber or Lyft—may help save you money and free up additional funds which can be re-applied toward getting out of debt and building more savings. You may also want to look deeper at other monthly expenses such as phone or cable plans which you can downgrade or modify to save additional money. And, of course, eliminate activities or unplanned expenses that negatively impact you. Get into the “weeds” of the needs and wants of your household. And when I say household, I mean household. Everyone has to participate.  This is not an overnight process, nor is it easy to accomplish. In fact, it will and should impact your lifestyle for a while. It could be 24-36 months or more depending on the amount of debt you’re in. Here are a few things to remember. First, taking charge of your financial life is one of the most empowering activities you could ever engage. Secondly, speaking from experience, you can live on much less that you believe you can. Thirdly, by instilling the self-discipline now, you are establishing a solid foundation that can help you get out of debt and save.

Maximizing your savings by putting it to work

Once you have made the adjustments needed to realize some savings, you can immediately put those funds to work.  Beginning with the smallest debt account first, you can begin to slowly apply payments toward that debt. Even if you were only able to apply a small amount of funds saved from the review and renegotiation process, that amount applied directly to your debt significantly accelerates debt reduction. Let’s say it was $300 per month.  That’s $3,600 annually or $10,800 in 36 months. In addition, you may also be able to apply additional income such as work bonuses or your annual tax refund to further accelerate paying off your debt. You want to utilize every opportunity to get out of debt and save. The bottom line is, it can be done if you stay on the path. What’s more gratifying than being able to get out of debt on your own. (Ok maybe getting a million-dollar check.) You’d also be saving yourself the cruel irony of borrowing to get out of debt. Once your debt is paid, you can shift priorities on your budget and dedicate funds to build up an emergency fund and or retirement savings.