Archive for the ‘Savings’ Category

My good friend, Fey, posed a few questions and ideas in her comment on my previous post about saving for an emergency fund that I wanted to highlight and talk through a little of my decision-making process on this. I’m happy to have suggestions like this and open this blog up to more back and forth. 

 Its good you are saving for your emergency fund. But unless your credit card debt is on a 0% interest card, wouldn’t it be better to pay off high-interest credit cards first before starting an emergency fund?

Example: If your savings was earning 5% APR while your credit cards are charging you 15% then that would be 10% you are loosing dollar for dollar that’s sitting in your savings account……

I totally agree with you, here, that the key is paying off the high interest card debt. But without the emergency fund to tap in to when the car inevitably needs a new timing belt or I need to call the plumber out to unclog a drain I can’t manage — I’m afraid of resorting back to those cards to cover these emergencies.

While keeping $1000 in a savings account that doesn’t earn nearly enough in comparison to the interest charged on that $1000 of debt that could be paid off sooner may not be the most aggressive debt reduction strategy — I think for me the psychology and feeling of being covered in an emergency outweighs the cost of the extra $$ I’ll be paying on that $1000 of debt.

For xmas have you thought of a secret santa gift exchange between the adults? I know you have lots of family members…And for the kids (mine and everyone elses) I write up a budget and decided how much money I will spend on each one. Then I start shopping in September and pick up things here and there with my spare money grocery money. By the time Thanksgiving rolls around I am done.

Great suggestions! I’ve also been keeping a budget over the last few years. I’ve really cut the number of “extra” people outside of my family down to few and we do focus primarily on the younger kids. Last year, my siblings and I decided to limit ourselves to $10 each, too, so we still have the fun of exchanging presents but without hitting our pocketbooks too hard. I was pleased too at how creative we all did get within that small amount.

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WordPress’s widgets are getting the best of me today. I was trying to edit my emergency fund savings total to $68, but it’s not getting saved. Gremlins in the system perhaps, but regardless (note: fixed) — I’m up a tiny bit towards the goal of $1000 for my emergency fund.

I set up a new online, high yield savings account with Amboy Direct that I plan to funnel money to once my Bank of America savings account gets past $100 (this also functions as my checking account overdraft protection — I plan to always keep $100 in that account).

How do I plan to save for the emergency fund?

  • Last week, I set up two $25 automatic deductions from my checking to my savings for the 1st and 15th of the month (pay days). I’ve also budgetted this into my monthly budget.
  • I’m enrolled in Bank of America’s Keep the Change program which rounds up all retail purchases to the nearest dollar and daily transfers the balance from the checking account to the savings account. I simply record my daily transactions rounded up in my check register so the accounts reconcile.
  • At the end of the month, I’ll also look to see if any additional funds are left over above and beyond the monthly budget to move into the savings account.
  • Miscellaneous income (like the $30 rebate from my recent monitor purchase, due in May) will also go directly into this fund.

But what about saving for other, smaller goals like Christmas and vacations?

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Readers, you can see that I have basically no savings. Anything that disrupts the monthly budget (well in theory if I had one…but I’m working on that) basically got put on credit. Hence the downward spiral.

So before I can even start considering my future of savings towards investing…I need to simply start saving towards an emergency fund to help support no use of credit cards.

Trent at The Simple Dollar has a great post about his emergency fund and how it helped him when the brakes on his truck. This is exactly what I’m talking about. He writes:

This cash reserve should be as liquid as possible (a high-yield online savings account is just about perfect) and should contain at least $1,000 (at first) and eventually six to twelve months of your household’s take-home salary (eventually).

Liz Pulliam Weston over at MSN.com last month talked about why you need $500 in the bank in her money column. She acknowledges that most talk about financial cushions centers on the importance of an emergency fund, that stash of cash that’s supposed to equal three to six months’ worth of expenses. But for those of us crawling out of debt, that can seem like an unreasonable goal.

Her tips on getting to $500 first for an emergency fund:

  • Start by keeping an extra $100 in your checking account. If you maintain this pad and resist the urge to spend it, you’ll greatly reduce your chances of bouncing a check.
  • Then funnel $400 into your savings account. It may not seem like much, but $400 will cover a good chunk of the real emergencies that come your way, from car repairs to insurance deductibles to replacing an appliance that breaks down.
  • Then leave it alone unless you’re facing a real emergency. If you’re in credit card debt or owe money to payday lenders, you must get out of the habit of looking for a quick “fix” when you encounter unexpected expenses.
  • Tell it, Liz!

    $500 or $1000? Well, I’m setting my goal for $1000 primarily because I’m single and a homeowner. It all rests on my shoulders so I want a little extra cushion than Liz recommends. But we will celebrate on this blog when that number hits $500, too.

    I will keep $100 in the Bank of America savings account for the overdraft protection on my checking account. When I get over that amount, I will funnel it into a higher yielding online bank savings account. More on those in a future post.

    Wow.

    Calculations are in.

    I’m just going to post the numbers and hit the sack. It is what it is.

    Credit card debt: $18,375* (this number is current for March 1, before payments I’m making this month)

    Savings: $46 (this number is current as of today)

    I’ll post a bit tomorrow about how I got into this much (pretty typical, most likely), about some of the things I’ve done to reduce my expenses in the last two months, and set some goals.

    *note: this does not include my student loans, credit union car loan, small credit union personal loan, or mortgage — all which have halfway decent interest rates. So I don’t curl up in the fetal position and sob — I’m only focusing on the credit card debt, now, while continuing to budget and pay down these debts as well.