Phase 3: Saving Money
- Set up an online savings account
We are ready to start saving ourselves some serious money: an emergency fund. You could also call this your 'freedom fund:' freedom from debt, freedom from the fear of something happening and not having the means to take care of it, freedom to start earning some money!
We are going to put our emergency fund savings into an online savings account, sometimes known as a money market. A money market is essentially an account that acts like a savings account, but pays you much more for holding your money there. Why online accounts? Because they pay a darn good interest rate: some as high as 5% per year. Let's start saving and start earning!
1. Get online.
2. Choose a company to open your online account with. We like ING Direct's Orange Savings Account and HSBC Direct's Online Savings .
For ING Direct, go to https://banking2.ingdirect.com/savings/initial.vm?type=3000. For HSBC, go to http://www.hsbcdirect.com/1/2/1/default/appinfo?code=M1200007DB.
3. Follow the directions to apply for or set up an account.
4. You're done!
- Set up an automatic savings plan
Now that we have a special account for our savings that pays us, we are ready to start putting some moolah in there! We are going to make it automatic, so that we don't even notice the money going in there. Here, you have a couple of options. The first is to save the total amount you have been putting toward your debt (which is now gone, hooray!)...we'll just put that amount right into our savings since we're used to it being gone anyway. The second is to put 10% of your income in your savings. Don't be intimidated by 10%! You won't even miss it! You'll adjust your spending since it's going into your savings automatically. We suggest you save whatever amount is greater; the debt payment or the 10%. You can do it!
1. Log on to your online savings account.
2. Select 'Transfers,' 'Automatic Savings Plan,' or where ever on the site you move money into your account.
3. Follow the directions to set up automatic transfers of money from your regular checking to your online savings account. Choose to have the money transferred the day after your first payday each month.
4. You're done!
- Save 3-6 months of your expenses or income to complete your emergency fund
Today is a simple step: figure out how much you need to sock away into your online savings account to complete your emergency fund. Experts suggest saving 3-6 months of your living expenses as a cushion against hard times. If you know your monthly expenses, go for it! If you don't know your monthly expenses, and don't want to take the time to figure them out, you can take the easy route and just save 3-6 months of your monthly income.
A great way to build your emergency fund fast is by depositing any extra chunks of money you are blessed with into your fund instead of spending it. The next time you get a bonus, your tax return, or something similar, just put it right into your online savings account.The more you save each month into your emergency fund account, the sooner you'll have that fund ready, and the sooner you can start having some fun with your extra money!
1. Figure out your monthly living expenses by perusing your checking account, credit cardaccounts, etc. Don't forget the annual expenses like car insurance and taxes.
2. Multiply this number by 3-6 and write it on a post-it note and stick it near your computer, OR skip Step 1 altogether and multiply your monthly income by 3-6. Write this number on a post-it note near your computer.
3. You're done!