New here, looking for savings advice

[jimstolz76]

Hello all!

I just found this site and am very interested.

I have a question about setting up a 'procedure' for putting money away in savings. My wife and I have finally gotten to the point where we can pay our bills with no overtime at either job. It's tight, but it's possible. We've cut back on a bunch of stuff (basic cable! and I install home theaters!!) but have NO savings other than 401K.

I am not at all comfortable with this. Things always come up, as you all know. We both know this as well. However, it's taken us a long time to get to the point where we can survive without having to worry. We're ready to get to the next step.

I want to save for the following things...

Emergency Fund
Long-term (retirement) savings
College Fund (13 year old step-daughter & continuing education for the wife)
Vacation fund (we have a 7 day trip coming up in 2 months with nothing put away...)

How do I go about doing this? I'm currently putting 5% of my pay towards my 401k and my employer is matching up to 3%. I'm thinking of having $100 per pay direct deposited into an INGdirect account. I think that's a good start, but how do I allocate money to all of the above things I want to save for? And how much should I save for each thing? If I just sock money away, it will end up going towards something it was not meant for.

I'd love some real-world examples of how people are handling this. I can think of a ton of ways to do this, but I'd like to hear what has proven to work for people.

Thanks!
Jim

[skydivingchic]

Here is what I am doing, which may or may not work for you, but maybe it will give you some ideas.

I have 2 savings accounts and one checking account that yields 5% up to $25,000. My savings goals are:
1. Retirement
2. Six months expenses in EF
3. New (to me) car
4. Travel

After 14% for my 401(k) is already taken out, my paycheck is automatically split into 3 accounts. Some into my Wamu savings, which is my EF. Some into my Emigrant Direct savings, which is my car and travel fund. The rest goes to my checking account. I also have a Roth IRA with T. Rowe Price that I am maxing out. They automatically take $416 each month directly out of my checking account.

I use Mvelopes, so it is very easy for my to split my accounts up into different "pots" of money. I keep some of my EF and personal savings in my checking account since it has a higher interest rate than the savings accounts. Those bits of my savings have their own envelope in Mvelopes, so I can easily see that even though it is in my checking account, it is designated for other purposes. I also have envelopes for my other savings accounts, appropriately labeled as to their purpose. I find it much easier to keep my hands off the money when it is clearly marked as "emergency fund" or "new car" than if it was just sitting in an account. You could do something similar by opening several savings accounts - one for the EF, one for vacations, etc. For retirement you can continue using your 401(k) and/or open a Roth account with someone like T Rowe Price or Vanguard. I can't speak to college savings options since I don't have children, but I'm sure others here will chime in.

As to how to allocate the money. Sit down and figure out how much you need for each goal. How much goes toward each will really depend on how much needs to be saved and how long you have to do it. Also, any extra money you have at the end of the month or "found" money like bonuses, birthday gifts, etc can be put into the highest priority savings account. It is amazing how fast little bits add up and how motivating it is to see the numbers climb.

Good luck.

[jimstolz76]

Thanks for the reply.

I'm noticing on here there are a lot of people that put a lot more into their 401K than I am doing (5%)... I'll have to reconsider that.

Is there any advantage to having the savings accounts with different banks?

What I don't understand is what is the 'highest priority savings account'? To me, the EF should be the highest priority, but I'm afraid that I'll be able to save so little that the long term savings and college savings will suffer and I'll lose out in compound interest from having money in there the whole time.

I can see I have a lot to learn

[red92s]

If you open an ING savings account, you can actually create multiple sub-accounts that are all visible from the same accounts page. So, I actually have 4 ING savings accounts: short term savings, car fund, house fund, Roth IRA fund. Here is a short tutorial:
The Simple Dollar » How To Set Up Multiple Savings Account Funds Within ING

Not my picture, borrowed from a blog:


I keep my emergency fund at a different bank (HSBC), as it keeps it truly separated and harder to access for impulse purchases. The interest rate is also somewhat better than ING at the moment.

My employer direct deposits my paycheck into my ING checking account. From there, I have automated transfers setup that shuttle money to the appropriate savings accounts (HSBC, ING roth, ING short term savings, etc). The remainder stays in the ING checking account for general purchases, bills, et

I've tried the Mvelopes site mentioned above, but found it excessively complex for my fairly straightforward budgeting needs (single, no mortgage). I do use Mint.com (free) so that I can view allllllll my checking, savings, and retirement balances quickly and easily in one place. The automated account summary emails every Friday are great as well.

[fruitbowlk]

Hello and Welcome.

I have a 401(k) that I'm placing 6% in and my employer matches that.
I have a Roth IRA that I'm placing $100 a month into.
I have christmas account that I place $50 a month into and if I don't use all $600 I will place the remaining money in my EF.
I have an EF that I place $50 a month into.
I have a regular savings account I call my vacation, car,house etc savings account.
I haven't started my daughter College fund yet. I'm trying to go by Dave Ramsey's baby steps and I'm still working on step one if you do not know the steps look below.


1 $1,000 to start an Emergency Fund
2 Pay off all debt using the Debt Snowball
3 3 to 6 months of expenses in savings
4 Invest 15% of household income into Roth IRAs and pre-tax retirement
5 College funding for children
6 Pay off home early
7 Build wealth and give!
Invest in mutual funds and real estate

[maat55]

I suggest that you establish a prioritized financial plan. That means that you should set goals and reach them in an order.

Small EF (1000)
Debt freedom
3 to 6 month EF (5000 to 10000)
10 to 15% retirement ( your choice)
College fund
Vacation fund

As you can see, in my plan, your vacation 2 months from now does not happen. If you want to reach your goals and prosper, your going to have to learn to prioritize and sacrifice for a better plan. I wasted 20 years not prospering because I didn't prioritize, now that I'm on track I'm prepaired for hardship and am prospering with much less stress.

It's good to see that you are looking for information to better yourself, I hope you get on a plan with a good budget and stick to it. Good luck.

[jimstolz76]

Originally Posted by red92s

My employer direct deposits my paycheck into my ING checking account. From there, I have automated transfers setup that shuttle money to the appropriate savings accounts (HSBC, ING roth, ING short term savings, etc). The remainder stays in the ING checking account for general purchases, bills, et

I used to have ING do an automatic withdrawal on paydays from my main checking account. My problem with this was that I would go in and tweak the amount being withdrawn, or skip the withdrawal all together. I need it to be difficult to change.

I guess two main limitations right now are that I don't have much to put away, and I'm not as disciplined as I should be.

I'm thinking the $100/pay ($200/month) is going to be hard. But I bet after a few months in I won't even notice and will be finding more and more money to put away. I tried having separate accounts for savings, automatic bills, manual-pay bills, etc. and basically what happened was I didn't have enough money in any of them and ended up with overdraft fees from multiple accounts instead of just one.

I need it to be simple to follow and hard to change... if that makes any sense

Love the input, thanks!

[maat55]

Originally Posted by jimstolz76

I used to have ING do an automatic withdrawal on paydays from my main checking account. My problem with this was that I would go in and tweak the amount being withdrawn, or skip the withdrawal all together. I need it to be difficult to change.

I guess two main limitations right now are that I don't have much to put away, and I'm not as disciplined as I should be.

I'm thinking the $100/pay ($200/month) is going to be hard. But I bet after a few months in I won't even notice and will be finding more and more money to put away. I tried having separate accounts for savings, automatic bills, manual-pay bills, etc. and basically what happened was I didn't have enough money in any of them and ended up with overdraft fees from multiple accounts instead of just one.

I need it to be simple to follow and hard to change... if that makes any sense

Love the input, thanks!

You can fix this problem by saving up a small working capital in your checking account. Half to one months expenses hidden in your account will allow you to pay any bills as they come.

You will live paycheck to paycheck until you stop spending and start saving. Get focused on prospering and not being a mega consumer.

[jimstolz76]

Originally Posted by maat55

As you can see, in my plan, your vacation 2 months from now does not happen. If you want to reach your goals and prosper, your going to have to learn to prioritize and sacrifice for a better plan. I wasted 20 years not prospering because I didn't prioritize, now that I'm on track I'm prepaired for hardship and am prospering with much less stress.

It's good to see that you are looking for information to better yourself, I hope you get on a plan with a good budget and stick to it. Good luck.

Thanks

The vacation was not our idea, a friend is renting a big house and invited us to come if we helped pay for a small portion of it. I've never been on a real vacation as I was self employed from 18 til 26 and have been too broke from 26 til now (31)

We already think the vacation may not be happening due to some other circumstances... It will be a disappointment but we'll get over it.

Right now I need to set up some 'habits' for my wife and I to follow. If it's not second nature, we won't do it. We're both smart enough to follow it if we can figure out a good plan, but we're both also impulsive enough to falter at the first speed bump.

We have done well so far. We bit the bullet a while ago and went to CCCS for debt counseling and are working on paying that off. I have some outstanding IRS debts, my wife has a small $1,300 bill to pay before she can continue classes for a respiratory nursing degree, and we have a car we're paying off. Other than that, we have no debts. It's slowly getting better for us, and I want to make sure we're on the right track.

[fruitbowlk]

Originally Posted by jimstolz76

I used to have ING do an automatic withdrawal on paydays from my main checking account. My problem with this was that I would go in and tweak the amount being withdrawn, or skip the withdrawal all together. I need it to be difficult to change.

I guess two main limitations right now are that I don't have much to put away, and I'm not as disciplined as I should be.

I'm thinking the $100/pay ($200/month) is going to be hard. But I bet after a few months in I won't even notice and will be finding more and more money to put away. I tried having separate accounts for savings, automatic bills, manual-pay bills, etc. and basically what happened was I didn't have enough money in any of them and ended up with overdraft fees from multiple accounts instead of just one.

I need it to be simple to follow and hard to change... if that makes any sense

Love the input, thanks!

I started putting away $5 in my accounts and then I increased as time when on. I know that's not alot and some people would think that might be a waste of time to do but saving something is always better than saving nothing at all. IMO. I would start with an EF. Set a amount and time frame of what you would like to save and go for it.

[maat55]

Originally Posted by jimstolz76

Thanks

The vacation was not our idea, a friend is renting a big house and invited us to come if we helped pay for a small portion of it. I've never been on a real vacation as I was self employed from 18 til 26 and have been too broke from 26 til now (31)

We already think the vacation may not be happening due to some other circumstances... It will be a disappointment but we'll get over it.

Right now I need to set up some 'habits' for my wife and I to follow. If it's not second nature, we won't do it. We're both smart enough to follow it if we can figure out a good plan, but we're both also impulsive enough to falter at the first speed bump.

We have done well so far. We bit the bullet a while ago and went to CCCS for debt counseling and are working on paying that off. I have some outstanding IRS debts, my wife has a small $1,300 bill to pay before she can continue classes for a respiratory nursing degree, and we have a car we're paying off. Other than that, we have no debts. It's slowly getting better for us, and I want to make sure we're on the right track.

You and you alone are responsible for every decission that affects your personal finances. You need to tell every dollar you get where to go. You can't blame speedbumps for your failures, you need to sit down and make a budget and find a way to get fron a to z. EF's are your speedbump buffer, getting debt free and living on less than you make is your way to prosperity. Quit half way doing it and just do it right.

[jimstolz76]

Originally Posted by maat55

You and you alone are responsible for every decission that affects your personal finances. You need to tell every dollar you get where to go. You can't blame speedbumps for your failures, you need to sit down and make a budget and find a way to get fron a to z. EF's are your speedbump buffer, getting debt free and living on less than you make is your way to prosperity. Quit half way doing it and just do it right.

Agreed. That's a tough lesson to learn.

The wife and I will be having a long conversation tonight.

Thanks!

[Nate417]

Depending on the state that you live in, you may check to see if they have a state sponsored college 529 plan to save for college expenses. I live in Indiana and we have a state sponsored plan with a 20% tax credit on all of your contributions up to $5,000 which is pretty awesome. If your state doesn't have a state sponsored plan, you can still look into a basic college 529 plan that will allow you to make contributions with after-tax dollars and make withdraws for college expenses tax free.

[jimstolz76]

Originally Posted by Nate417

Depending on the state that you live in, you may check to see if they have a state sponsored college 529 plan to save for college expenses. I live in Indiana and we have a state sponsored plan with a 20% tax credit on all of your contributions up to $5,000 which is pretty awesome. If your state doesn't have a state sponsored plan, you can still look into a basic college 529 plan that will allow you to make contributions with after-tax dollars and make withdraws for college expenses tax free.

Thanks for the info. I live in MD and looked up their 529 plan and it is rated as one of the top in the country.

Thanks!

[maat55]

If you read many of these threads and the advice given, you will notice that there is a few basic fundimentals:

low debt load.
Having an EF.
Investing 10% or more.

If you follow these basic fundamentals, you will be prepaired for emergencies and retirement. Good luck.

[buzz]

Originally Posted by jimstolz76

If I just sock money away, it will end up going towards something it was not meant for.

Discipline is perhaps the most important factor in achieving savings goals. Even a good plan will fail if there is not the discipline to carry it out.

With this in mind, your strategy may have to focus upon ensuring that savings are (a) put aside and (b) not raided.

This is one of the strong suits of the 401k. The contributions are withheld before you can divert them, and they are relatively inaccessible. However, they are not an effective vehicle for an Emergency Fund.

What I suggest is rather controversial and will probably draw some flak, but I think it is worth consideration. Use a Roth IRA as your emergency fund. The $200/mo. you are talking about is not enough to reach your yearly contribution limit. Contributions (not earnings) may be withdrawn penalty-free. Hopefully, guilt will prevent you from using your IRA to purchase toys, but if there is an emergency, the money is accessible. This is not normally considered to be the proper role of a Roth, but it would discourage frivolous spending.

If money is withdrawn for an emergency, then hey, it's money that wouldn't be in there to begin with anyway. (It would be in your EF account.) I would recommend investing in a Money Market Fund or short term bonds as opposed to equity, so you are not faced with having to cash in your equities when they are at a low price point.

I would love to hear comments on this strategy.

[jimstolz76]

OK, so I opened an Etrade online savings account at 3.15% and a Provident Direct account at 3.50%. I also do my regular banking at Provident, so the online savings account shows up with my checking account when I do my normal online banking.

The Provident account will be very easy to access, while also having a higher interest rate. I opened the Etrade account thinking that I would put a larger portion of money in there because it would be a bit harder to get money out of and would help to reduce making withdrawals on 'impulse.'

Will I be losing out by putting MORE money in the lower interest savings than in the higher interest, easy access savings? Or is it worth it to lose a couple tenths of a point of interest in the hopes of keeping it safely away from the day-to-day finances?

[maat55]

Originally Posted by jimstolz76

OK, so I opened an Etrade online savings account at 3.15% and a Provident Direct account at 3.50%. I also do my regular banking at Provident, so the online savings account shows up with my checking account when I do my normal online banking.

The Provident account will be very easy to access, while also having a higher interest rate. I opened the Etrade account thinking that I would put a larger portion of money in there because it would be a bit harder to get money out of and would help to reduce making withdrawals on 'impulse.'

Will I be losing out by putting MORE money in the lower interest savings than in the higher interest, easy access savings? Or is it worth it to lose a couple tenths of a point of interest in the hopes of keeping it safely away from the day-to-day finances?

I wouldn't sweat it.

[jimstolz76]

Alright... I just turned in the form to start direct depositing 10% (yikes!!) of my net pay into my new E*Trade savings....

I hope this doesn't hurt as much as I think it will...

[jIM_Ohio]

It will hurt now because you were probably spending the money before. As long as you can live on 90% you will be fine- creating the savings habit is an important step.