Entries Tagged 'Savings' ↓

A post over at Free Money Finance caught my attention recently. The post references an article in Kiplingers Personal Finance Magazine called The Invisible Rich.

The concept is very simple – people live above their means, and it costs them in the future. Many young adults drive more expensive cars than they need, and live in a bit nicer apartment than they probably should. Chances are they’ve got an awfully nice ( and expensive, of course ) television sitting in their living room, and tons of gadgets here and their. Their closet is likely filled with clothes that cost too much as well. These same people complain that they won’t be able to own a home – they wouldn’t be able to save enough for a significant down payment, let alone stroke the big mortgage payment every month.

These people live in stark contrast to ‘the invisible rich’ – the people who simply live below their means, and save money. They have a smaller apartment when they’re younger, they don’t drive fancy cars, and they keep their electronics purchases to a minimum. When they do purchase a home, it’s more modest than many, and the down payment will be sizeable. These are the people who grow their net worth every single month – not because they are ‘rich’ per se, but because they live within their means.

Where do I fall between these two groups of people? Well, I started in the first and I’m transitioning towards the second. I have tons of electronic gadgets; though I have thankfully restrained myself from purchasing a big-screen TV and home theater system. I recently sold a V-8 high-dollar sports car and bought a Honda Accord. My other vehicle is a leased Lincoln Navigator, which will be returned to Lincoln in about a year and a half once the 3-year lease is up. At that time I’ll buy something smaller, and powered by a 4-cylinder engine. Likely a Honda Civic, maybe another Accord, or possibly an Altima Coupe. I still have time, and I’m sure there will be some good, reliable, economic choices available then. Financially speaking, I should buy a used car, but I can’t bring myself to do that anymore. The risk of mechanical failure simply aren’t acceptable to me. If my car fails and I can’t get to work reliably, then I’ll sure wish I bought something newer. And I would never risk my wife in a car that had excessive miles, and I didn’t know the history of.

As far as apartments go, I live in a nice, but not extravagant apartment. I could live in a less expensive place, but it would be too crowded, and in a much less safe area. Again, not a risk I’m willing to take. My furniture is nice, and should last for quite some time. I don’t plan on making any major purchases for the next couple years ( new car aside ) , so I don’t have any big foreseeable expenses. I’m working hard to live more frugally, and put money away each month. When it’s time for me to buy a home, I certainly want to have a sizeable down payment, so I can keep my mortgage very reasonable, and continue to build savings for the future.

How about you – what category do you fit in?

One of my basic financial principles is to have at least 6 months worth of your expenses in the bank. These funds should be easily accessible – i.e. not in an IRA or a CD.

When you’re calculating how much you need for your emergency fund, add up your necessary expenses. You can skip things like cable TV, starbucks, and eating out. If you’re in a tough financial situation, you can cut back easily in those areas.

The 6 month fund is designed to keep your head above water if you lose your job. The last thing you need during a job search is scrambling to pay rent and feed your family. You should be able to fully concentrate on finding the right job.

I’m still working on this goal, unfortunately. My monthly expenses are much higher than I’d like for the time being, and that’s making my goal fairly difficult. Are you working towards this goal? Have you reached it yet?

Capital One recently raised the interest rate on their online savings account to a cool 4.25% – that puts them on par with Emigrant Direct ( currently my online savings account of choice. ) This just gives everyone one more solid choice to earn a solid return on their savings.

I’m sure many of you have seen the offers – “transfer a balance and receive a 0% interest APR for a year!” These offers can earn you some free money, provided you read carefully & know what to do.
To begin, you’ll need to get a card that has this introductory offer. Make sure to read the fine print though! Many cards still charge a 3% or 4% fee to transfer the balance. You’ll want a card with 0% and $0 fee – that’s important! Citi has several cards that currently offer program – such as the Professional, Diamond Rewards, and Dividend Select.

Next, you want to request a “balance transfer check.” In theory, this check is supposed to be used to pay off another credit card, but you don’t have any credit card debt do you? When you receive your check, you’ll want to transfer the funds into your online savings account. You did open one after you read my post on them, right?

Now, set up an automatic payment each month, directly from your online savings account to your new credit card. Set it as the minimum – so you know you’ll never pay late, or forget and miss a payment.

Hide your card! This is the most important part. Do NOT use your card for purchases while you have a zero percent balance transfer active. You’ll end up paying interest on all your purchases, until the full balance is paid.

Be sure to note when the zero percent period ends, and pay in full before this time. All the interest earned by keeping that money in your high yield online savings account is yours to keep. Congratulations – that’s free money!

Online savings accounts are growing in popularity these days. A lot of people are asking “What is an online savings account, exactly?”
And that’s a fine question. Basically it’s a savings account that you only have access to online, which keeps the bank’s costs down. What does that mean to you? Higher interest rates paid on your deposits. The bank wins because an online savings account costs them significantly less than a standard savings account. You win, because you get more money! Granted, there are a few inconveniences with an online savings account.

For one, it takes a few days to make a withdrawal. You have to link your account to an existing checking account, and tranfser funds via ACH (Automated Clearing House) transfers, which can take up to 5 business days. You’ll probably want to keep a small emergency fund in you standard savings or checking account if you may need cash in a hurry. You’ll definately want to keep the bulk of your savings in your online savings account so you can get the best return possible. The best part of all? All major online savings accounts are fully FDIC insured – which means your deposits are 100% safe as long as the US Treasury has funds.
Some good choices for an online savings account are :

• Emigrant Direct, currently paying 4.25% APY
• INGDirect, currently paying 3.80% APY, with a teaser rate of 4.75% APY until April 16,2006
• HSBC Direct, currently paying 4.80% APY ( teaser rate good through April 30,2006. Unknown rate after that time. ) **

Each of these accounts are fee-free, and have no minimum deposit required.

**Note : HSBC does have standard savings accounts as well, which pay far less than the online savings account. Make sure you don’t open an account at a branch!

Currently, if you don’t feel like multiple transfers when teaser rates end, it looks like Emigrant Direct is the best choice, with their 4.25%APY. For those of you who have never heard of Emigrant Direct, they are a large bank with many regular branches, based out of New York.

Everyone wants more money in the bank. It feels good knowing you have some savings stashed away. The first question you need to ask yourself when starting to save, is why do you want to save? You need to set some goals – both short term and long term. Are you saving for a car, a home, a safety net, or retirement? You’ll need a realistic goal – don’t plan to save 50% of your income for example. You’ll only set yourself up for failure. Set a modest goal – for example, to put 10% of every paycheck away each month. Once you’ve gotten into this rhythm, it’s easy to increase your savings. After a few months of 10%, you can easily go to 15%. Soon, 20% looks attainable. All of a sudden you’ve got a big ol pile of money sitting in the bank. Stay tuned to find out what you should do with it.