New here, looking for savings advice

[buzz]

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 Contributions (not earnings) may be withdrawn penalty-free.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If money is withdrawn for an emergency, then hey, it's money that wouldn't be in there to begin with anyway.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]

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.

[Hot dog]

I also wanted to say don't stop the overtime just cause it isn't necessary now. Put all overtime into an emergency fund and then start on those bills. It will make the process much faster. Also read Dave Ramsey's book The Total Money Makeover.

[geojen]

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.

Not the hijack the thread, but I have a question. Should people be saving 10% of their total income or each income. For example, I and DH each put 5% of our pay into our 401Ks at work. Does this equal the 10% rule for investing? Or do each of us need to do this for it to count as 10%. I realize that we should both count on doing the 10% or more eventually, but right now we are still working our snowball.

[jimstolz76]

I also wanted to say don't stop the overtime just cause it isn't necessary now. Put all overtime into an emergency fund and then start on those bills. It will make the process much faster. Also read Dave Ramsey's book The Total Money Makeover.

The overtime isn't really up to me... supposedly we are at only 40 hour weeks, but I still sneak at least a few hours in there - as much as I can. I also still do some contracting work outside of my day job, but I'm trying to get away from that as it just takes too much time & effort away from the family. (unless I'm making like $500 for a morning's work......)

I also still have my wife's income, which isn't much, but she has GREAT benefits at her job. We switched from the family benefits at my job to just individual for me (which is covered 100% by the company) and put her and her daughter on her benefits for about half what we were paying... and we have much, much better coverage for them than we did before.

So, the 10% of my net income isn't 10% of our total income. Once we get used to this, I'm going to shoot for more than 10% of our total. We can definitely live on it if we just get serious about our finances.

[ea1776]

Not the hijack the thread, but I have a question. Should people be saving 10% of their total income or each income. For example, I and DH each put 5% of our pay into our 401Ks at work. Does this equal the 10% rule for investing? Or do each of us need to do this for it to count as 10%. I realize that we should both count on doing the 10% or more eventually, but right now we are still working our snowball.

IMO, you should take the total combined gross income between you and your DH, then multiply by 0.1 (10%). This will give you your savings target for 10% (note that I recommend saving more than that, but that's the concept anyway).

[jIM_Ohio]

Not the hijack the thread, but I have a question. Should people be saving 10% of their total income or each income. For example, I and DH each put 5% of our pay into our 401Ks at work. Does this equal the 10% rule for investing? Or do each of us need to do this for it to count as 10%. I realize that we should both count on doing the 10% or more eventually, but right now we are still working our snowball.

5% of x+5% of y=5% (x+y). You are only saving 5% of your income.

10% is a good foundation, I think most planners these days suggest 15% (which could include match). T Rowe Price recomends 15% from all sources be set aside for retirement.

[ea1776]

Removed.

[toptaxguy]

I wouldn't put the long term savings in an ING or any savings account. You'd be better off investing in equity mutual funds or stocks.