Category Archives: Saving It

Jun 01 1 comments
Saving It

SmartyPig, you are sweet

By annia316, via Flickr

E*Trade sent me a sad email earlier this month. My annual interest rate, which had hovered around 2.5 percent, has shriveled to 0.95 percent - a significant, upsetting reduction.

I decided to shop around for better deals. There really weren’t many. Most banks have lowered their rates in recent months, even for online-only accounts (thanks, crappy economy…), so moving my emergency fund to a different bank didn’t seem too reasonable.

Then, last weekend, while perusing the PF blog Poorer Than You, I found a solution in SmartyPig.com, an online-only bank-type endeavor that offers savings accounts at the somewhat astounding rate of 3.05 percent APY.

Just as important (and really, really clever/cool), SmartyPig’s raison d’etre is to help account holders save bit by bit toward specific savings goals. Like, instead of having one catch-all savings account, you can have a bunch of targeted accounts, each with a purpose and a monetary goal. SmartyPig will even calculate how much you should be depositing each month in order to have the amount of money you want by the time you need to have it.

I set up three accounts: A *new* emergency fund, a winter clothing fund and a holiday gift cache. You can follow my progress on the horizontal bar graphs in the sidebar.

SmartyPig’s pluses? There are many. But let’s for now focus on three:

  1. It’s hard to steal money from yourself. A bit of background: At one point I had like seven accounts with Bank of America. Yeah, seven. Four checking, three savings. Each had its own purpose (food, fun, vacation, long-term savings, etc.) - in theory a good thing - but sadly for me each was connected to the other by the brilliant but ever-tempting Instant Transfer function. Meaning I could save for six months, but if one day I felt like buying an unaffordable skirt at Bloomingdale’s, all I needed was my iPhone and seven seconds and that savings was transfered into one of the checkings and poof! Debit transaction. No more money.

    With SmartyPig, transfers take three business days to process. So if I can’t afford a skirt or whatever on the day I want to buy it, tough cookies. My savings are unaccessible. Translation: real savings. And no skirt. But let’s be honest. I didn’t need the skirt anyway.

  2. The demarcation of individual savings goals. Again, this is to deal with the idiocy that arises from everyday life. Before my E*Trade account became an emergency fund, it was a combination emergency/long-term/whenever-I-run-out-of-money fund, meaning I saved next to nothing when I had it. Now, with SmartyPig, my money is organized and labeled and strictly confined to a specific purpose. The clothing fund is for clothes. The gift fund is for gifts. The emergency fund? You guessed it. Emergencies.

    Scientists would call it “parsimony,” meaning simplicity. I prefer “mind games, or: fooling myself now so I don’t do something dumb that I will regret later.” Either way, it works.

  3. It’s soooooo easy to get an account. Almost creepily easy. Chutes and Ladders easy. I think it took 10 minutes. And that was while my mother was nagging me to come help her cook dinner. Which can be distracting. Even with the nagging I had three new savings accounts within 10 minutes (not including reading the fine print, which added maybe five to seven minutes). Def worth your time.

You can also share your savings goals with friends/fam/randoms so they can gift you money to help reach your goals. Very cool stuff.

So that’s my shameless plug. Let’s move on to the technicalities:

How to get a SmartyPig account: Click here. Follow the instructions. That is all.

How money gets into your SmartyPig account: A monthly transfer from another bank account. The amount of the transfer is determined like this: Enter your savings goal; enter the month by which you want to have the money; let SmartyPig calculate your monthly input, taking interest into account; let the auto transfers begin.

How to get money out of your SmartyPig account: Once you’ve reached your goal(s), you can either transfer the money back into your original bank account, receive your savings plus interest on a SmartyPig debit card or get a gift card to a participating retailer, sometimes gaining 6% more in savings. Or, if you decide to give up on your goal early, you can just transfer your money back to another bank account.

All of this is free. And so far I’m loving it. A++.

If you need/want help saving money, check out SmartyPig.

May 13 0 comments
Saving It, The Experiments

My emergency fund

emergency

Hotline, by Eflon at Flickr

Starting an Emergency Fund, personal finance bloggers say, is one of the essential parts of taking control of one’s finances and crawl one’s way out of debt. Here’s what it entails:

Definition of an Emergency Fund: Some amount of money - $1,000, $5,000, maybe more - that is set aside to pay for true emergencies if/when they arise. This money should be difficult to access, i.e. in a bank account for which you do not have a debit card, and used only when absolutely necessary. Job losses, car accidents, health problems and the like would count as Emergency Fund situations. Wanting a new pair of shoes or a weekend in Philly would not.

Emergency Funds provide financial freedom. With cash set aside for emergencies, I won’t have to use credit to finance my life should something bad happen. This makes so much sense, and I wish I had learned about the concept long ago.

Lucky for me, I already have an Emergency Fund of sorts, or at least I have a savings account at an Internet bank (E*Trade) - an account I draw from rarely and invest in biweekly - $36 every payday.

But to make it a true Emergency Fund, I must first do two things:

  1. Change my mindset about the money in the account.
  2. Stop using credit cards to buy things. Period.

I’ll elaborate. First, my mindset. Since I started investing in the E*Trade account a few months ago, I’ve gone back and forth about how I should use it. Mostly I’ve rotated between “Long-Term Savings” and “Vacation Fund.”

Neither makes much sense. With my megalithic debt and sad, meager income, I should not focus on investing extra income for the long term. Paying down my debt should be a bigger priority.

As for Vacation Fund, I should not go on vacation until I can afford to go on vacation. It kills me to say it, but I have to accept that I cannot afford vacation right now. If I am saving $36 every other week (that’s 5 percent of my take-home pay, mind you), I should not blow it on vacation.

So yes. That money, as of today, is for emergencies only. Nothing but emergencies.

Now about credit cards. Oh yipe, this is hard. But especially after reading this post at Get Rich Slowly, I’m convinced I should cut mine up and throw them away. Even though I’ve already stopped using them for most expenses. Even though, since starting my job in January, I have not gotten any deeper in debt.

Right now I use credit cards for three types of purchases:

  1. Stuff I cannot afford right now but will be able to pay for once I get my next paycheck
  2. Stuff my parents are buying for me but will have to pay me back for after they get their next paycheck (their situation is precarious, too, but for completely different reasons)
  3. Stuff I cannot afford at all but really really want

No. 3 happens rarely, but that it’s on the list at all is bothersome and unjustifiable. If I can’t afford something, I should not buy it. End of story. No excuses.

No. 2 may be a legitimate reason to keep one credit card on hand, and I will think about that one before cutting all my credit cards into a bazillion pieces.

As for No. 1, I feel like it’s a trap. Rather than buying something a week or two before I can afford it and risk buying too many things and being unable to afford them, why not just wait those few extra days? I can think of few truly good reasons to have purchased on credit the items I have recently purchased on credit. (Examples include: a skirt, a pair of shoes, sticky mats to put under my rugs so they don’t slide around on the floor, a few plants, a couple of dinners.) Credit cards create a vicious cycle - one I want to break.

Further, the only stuff I could truly, truly justify using a credit card to buy is stuff for which I could justify a dip into my Emergency Fund. Meaning I do not need a credit card, or at least I won’t once I have some dough in my Emergency Fund.

Oh sweet Jesus, I may have to cut up my credit cards.

But first let’s skip to Experiment No. 2: Establish an Emergency Fund. It’ll be slow going, but my goal is to put $1,200 in it by the end of the year. At my current rate, I’ll have about $900. That means in the next few weeks or months I’ll have to find some more ways to save.