The Savings Bucket is the good ole savings accounts where traditional banks want you to stash your money. They pay you a measly .01% interest rate to save your money with them while they loan your money out to other people and charge an interest rate of at least 4%, and usually well north of that. I can remember speaking with them about what type of accounts to open and they proudly say our money can earn interest in their savings account. Well, I guess they are more “interested” in that than you are…hehe….cheesy pun. Anyways, you could save money in Certificates of Deposit (CDs) and get a better rate, but then you are not as liquid as you could be with a simple savings account and have to wait for the CD to mature before you can take your money out. If you take your money out before the CD matures, you have to pay a penalty. I chose a different option.
I researched some online banks and went with Marcus.com, which currently pays me 2.25% interest on my money. Yeah, I know, even 2.25% is nothing amazing, but it is better than the .01% that PNC pays me. I opened two accounts with Marcus.com and deposit money, every two weeks on payday. These are my Savings account and my Emergency Fund.
My Savings account is used to save for anything that I need to pay in the next one to three months. Things like my quarterly taxes, savings for a new appliance, or savings to pay for anything that I can’t typically just drop the money down and pay. I have automated a set amount of money to come out of each paycheck and right into this account every two weeks. Additionally, when I am paid monthly profit from my business, I put a big chunk of that money in to cover my quarterly tax payments. If there is a month where I stay on or go under my loose budget, I send some extra money to this account by doing a manual transfer. Lastly, every quarter, I pull my rewards money down from my “Cash Card” and put half of this amount into this account. I wish I could say that this account always has tons of money in it, but it doesn’t. The word “Savings” here is more of a “Temporary Savings” until I reach the amount of money I need to pay the next big thing.
The Emergency Fund
I thought of starting my Emergency Fund after I listened to some of Dave Ramsey’s YouTube videos. He talk about how you should have a minimum of three months of your living expenses saved for a rainy day. Ideally, he recommends up to six months of expenses to be saved, but that takes some time. This money is only to be used in an EMERGENCY!!! No, “The new flat screen just went on sale,” is NOT an emergency. “All my friends are going on a big trip and I am invited,” is NOT an emergency. I am talking about real emergencies where you have no choice but take the money out of the account. These emergencies include things like, “I just lost my job and have no money coming in,” or “Someone in the family has had a serious health problem and we need the money to help the family.” There can be a number of real emergencies and you will know then when they happen. Mostly they will be identified by a major need not a major want.
Money should be automatically added to the Emergency fund regularly. Hopefully you don’t need to draw from it much. You may be thinking that you can’t afford to put three months of living expenses into an account. You don’t have to start with three months. Start with just adding $1000 to the account as quickly as you can. Once you have the $1000 in the account, just come up with an automated plan where you transfer a certain amount of money to it every week, every two weeks, or every month. You will be surprised how quickly it grows if you automate it, forget about it, and don’t draw money from it. I have automated deposits into this account every two weeks, put half of my “Cash Card” rewards into it every three months, and then put any extra money into the fund when we have a good month where we are on or under our budget for spending.
Paycheck to Paycheck
I have to admit that I still have my standard savings account with my bank at a measly .01% interest rate. I just automate a little bit of money into this account and don’t even look at it. I use the account just in case there is an accidental overdraft on my checking account, which tends to happen sometimes when I misjudge the money needed to cover a bill that is automatically deducted from my checking account. This doesn’t happen often, but it does. I do live paycheck to paycheck, but that is because of my savings and investments, so you can see how this overdraft account can be helpful. Also, when things go well and that account builds up to more than I really need in them, I take some of that money out and either invest it, put it into my Savings account, or in my Emergency Fund.
My savings continues to grow and I am proud to say I have more money saved now than I have ever had saved in my whole life. I have reached my three months of expenses goal!!! I continue to send money to my Emergency Fund with an automated plan. I am not sure if I will really shoot for the six months of expenses to be saved because that is quite a bit of money saved into an account only paying about 2.25% interest. I feel like that money would serve me better invested in the stock market or similar type of investment. I guess I will cross that bridge when I get there, which shouldn’t be too long!!!