SPLRG

FinancesDecember 28, 2016

If you’re anything like me, that holiday bonus check that sometimes comes at the end of the year (or if you’re lucky, every quarter) is a steaming hot cup of “just in time.” Especially for those of us whose jobs don’t provide us with more than we spend, an extra cash bonus or a healthy commission check is the best thing that could happen to us around the holidays.

The idea of a bonus check and the emotional response that accompanies it is one that appeals to me on a higher level. The fact that it is such a universally agreed upon method of compensation – from bankers on Wall St. all the way down to the small businesses on Main Street – says something about its efficacy. People enjoy the relative randomness of its arrival, which allows us to make purchases that we otherwise might not make – a large appliance or a down-payment on an automobile. Regardless of the size of the bonus, the frequency of it, or the reason for its existence, we know that it is good. So why don’t we devise more ways to equip ourselves with large sums of extra income at random intervals? Why isn’t this a more common form of savings? Why is it that we only earn bonuses when our companies have a great quarter in sales?

Consider your group of friends. You have a group of maybe 5 or 6 people who you really trust? Good. One of you is good with numbers, dates, and planning? Even better. Alright, now think about how your friend group usually handles monetary transactions. One person gets the food for your upcoming party. Another gets the beer. That’s probably the extent of it, right? What if we could take advantage of our friendships and the trust we’ve built within them in order to organically recreate the positive aspects of our bonus checks?

Recreating your bonus check organically

Here’s the idea: set up a Rotating Savings Group among your friends. Rotating Savings Groups (RSGs) are already commonly used in rural communities worldwide and are gaining popularity among young people in the United States. The idea revolves around a group of friends taking a certain dollar amount out of their weekly or monthly earnings, and putting them into a pot – most often sent to the group’s “Treasurer” to be stored in a bank account for the group. Let’s say each individual in an RSG of 6 sets aside $40 per month. That’s $240 for the whole group per month.

The Treasurer’s job is to take that money and give it to a different member of the group each month in a random fashion – making sure that each group member receives the large sum once before another group member receives it twice. Some groups decide to store a small percentage of the group’s sum in an account that the entire group can earn a return on. Let’s say the Treasurer cuts $40 off of the top of the monthly $240 in a mutual fund. He or she then sends out the other $200 to one of the six individuals in the group, and takes that person’s name out of the pot for the next 5 months.

By this design, each group member only sets aside a small sum of cash on a monthly basis and in return earns a “bonus check” once every 6 months – to be used to make larger purchases or gifts. The remaining cash gets set aside and added to a pot that earns some return on investment or can be used at the end of each year to pay airfare for a group trip across the country.

Things to Look Out For

Obviously, this form of savings requires that you trust a handful (or at least one) of your friends. Hopefully that is already happening. It pays (quite literally) to establish rules up front. What does the extra cash get invested in? What happens if someone leaves the group? How do we handle it if someone pays late?

Many groups decide not to cut any money of the top of their collection (meaning in our example, the “winner” of that month’s pot earns all $240.) This is certainly a simpler method, but the idea of collective investments and savings is one that should be taken seriously. Compounding interest works better where there are larger sums of cash. If you’re not already shaving parts of your paycheck off automatically in order to invest in your future, ask around and figure out the best way to start. And if you need an easy way to save up for a large purchase in the future, call up your friends and get saving!

Looking for a better way to manage group spending during a vacation, long weekend, night out, or any other event? Take a look at the SPLRG app and learn more.

Sean Little is a writer, comedian, and small business consultant from Chicago, IL.