Posts Tagged savings
Reaching Our Savings Goal
As of today, our savings account has just over $2,000 in it, a goal we’ve been working towards for nearly a year. I’ll get to how we did it in a moment, but first some history.
Last September, I began the long process of getting our finances under control. We had several thousand dollars in credit card debt that accumulated over the course of our marriage. For a long time we were living paycheck-to-paycheck and usually needed to put a little more on a credit card at the end of every month to cover expenses. It seemed that no matter how good things looked at the beginning of the month, the well was dry before the end. As mentioned previously, one of the most helpful instruments in correcting this course was Mint’s budgeting tool. Seeing how much money we were wasting on eating out and unnecessary shopping was eye-opening, to say the least.
I decided that I was fed up with living like that and that we were going to change, no matter what it took. We took a couple major steps to getting our credit card debt into a manageable state. These steps are not recommended by most people smarter than me, but at the time, I didn’t know any better. We took out a loan on my 401k and opened a new credit card that offered 0% interest for 12 months on balance transfers. We paid off some of it and moved the rest to the new card. Again, I don’t necessarily recommend these steps, but at the time I was desperate. We then stripped as much out of our monthly expenses as we could and were able to budget $300 per month to get the credit card paid down as quickly as possible. I’ll be honest, we were fortunate to hit this goal much sooner than originally anticipated, due to a substantial tax return that we weren’t expecting. The final nail in the credit card coffin came in May, when the final payment was made, bringing the balance to $0. I must admit, it was a pretty liberating feeling as I had not personally lived without credit card debt for almost ten years. I kind of wish I would have had someone take my picture as I clicked the button to make that final payment. Oh well.
Once this obstacle was out of the way, the next step was to divert all of the money from the credit card payment into our savings account. Most financial experts and blogs will emphasize the importance of establishing an emergency fund while paying off your debt, so that if something does come up, you aren’t just adding fuel to the fire. Because of the aforementioned 401k loan and tax return, we were able to create a small buffer in our checking account. This would hold us over, but it wasn’t quite the emergency fund we wanted and needed. So for the past three months, we’ve been putting the $300 that was previously budgeted for the credit card payment into the official emergency fund. So how did we hit our $2,000 goal so soon, you ask? Well, I get paid every two weeks, which means that twice a year I get an extra paycheck. When first setting up our budget in September, I determined it was easier to budget based on two paychecks each month, and this semi-annual “bonus” could be used for whatever was needed most at the time. In this case, all of it went into our emergency fund, helping us cross the savings finish line that much sooner. While a large portion of our debt was able to be squashed thanks to the 401k loan and the tax return, we wouldn’t be where we are now without lots of discipline and the right tools.
This doesn’t mean we’re done saving, however. A portion of that $300 will continue to go into the emergency fund, while we’re also saving for a couple other specific goals. I’ve already increase the amount of my emergency fund goal in Mint to $4,000. The journey isn’t over, this was just a big milestone.
The 1% More Savings Calculator
Need some motivation to help you save a little more from your paycheck? The New York Times has a nice calculator that will show you exactly how increasing your savings by just 1% can make a significant difference over time. One thing to note, by default they have the “expected annual return” set to 5%. I’m not aware of any savings accounts that currently offer that kind of interest rate, so you’ll want to move that slider to whatever your savings/money market/CD is earning for you.
Increasing your savings by one more percentage point – or even better, another percentage point a year – can add up to big additional savings over time.
What I Use: Savings Account
Over the next several days, I’ll be detailing all of the tools I use in my financial ecosystem, from accounts to services. I’ll explain what I use and why.
Savings Account: Ally Online Savings
As with your checking account, you’ll want a no-fuss savings account that offers a competitive interest rate. Like my checking account, I previously used ING Direct as my bank of choice for savings. And just like my checking account, I’ve moved my savings over to Ally Bank.
There aren’t many details that need an explanation when it comes to Ally Online Savings. They offer a higher interest rate than most banks, including ING Direct, but as I mentioned in my last post, don’t base your decisions on interest alone. This account has relatively few fees, most of which are the standards, such as overdraft fees. This shouldn’t be an issue for most people, as long as you’re using your savings account for saving. There is no minimum balance to open an account and no monthly maintenance fee.
One item that does need a little explanation is the limit on transactions. You can only make six transactions per statement cycle before being charged a transaction fee. This is a federal regulation, and is the same for all savings and money market accounts, not just Ally. This restriction is not applicable for deposits, which are unlimited. Again, if you’re treating it as a savings account, this limitation shouldn’t pose a problem.
There is one feature that I would like to outline a little bit. Something that I really like about Ally Bank (and ING Direct before it), is the ability to create as many savings accounts as you like. It may sound strange at first, but having multiple savings accounts allows you to funnel your money into different accounts, each allocated for a different purpose. For example, in addition to our standard “Savings Account,” I’ve created one labeled “Vacation Fund.” Once we get our car paid off, I’ll create an account for “Car Fund” so we can start saving for another car purchase down the line. Being able to keep track of your different savings goals in this manner is extremely helpful, and I highly recommend taking advantage of it, if your bank offers it.
