I’ve Paid For This Twice Already…

Archive for the ‘savings’ Category

Investing and planning for your financial future takes a lot of time and research. There’s tons of conflicting information on what’s best and what’s not but if you’re considering investing your money in a CD then here’s a guide that offers a basic overview of how that works.

What Is A CD?
First off, a CD is called a Certificate of Deposit. This is widely considered as one of the safest investment options out there. This is usually for people looking to invest long-term because they have a relatively low rate of return. This doesn’t mean that they’re a bad choice. It just depends on how much money you have to work with and how comfortable you are putting it in someone else’s hands. So for those who don’t want to run the risk of losing their money, CD’s are the safest way to go but just realize that you’re not going to see massive returns like with the stock market or other investment vehicles.

What Does A CD Do For You?
A CD, simply put, pays you interest on the money you’ve put on. It works a lot like a savings account but the money you earn is usually higher with a CD. You want to shop around for the highest Annual Percentage Yield (APY). This is how much interest you earn on your investment. Though a CD is much like a savings account, the difference is that, with a CD, you can’t touch it. Once you put money in, the amount is locked in and if you try withdrawing money before the term is up, you’ll be hit with penalty fees. So before investing, make sure that you don’t need that money for anything else.

How Do You Get A CD?
Starting a CD is very simple. Go to your bank or credit union and tell them that you’d like to invest in a CD. You’ll have to fill out a simple form and sign some disclosures. After the paperwork is done they’ll take your money and put it into the CD. They’ll give you a certificate and some paperwork that outlines the details of your investment. That’s pretty much it.

Managing Your CD
Managing your CD investment is quite simple. At some point your CD, like any investment, will pay interest. From here you’ll have to decide whether to reinvest the interest that’s accrued over time or take it in cash. Once you start earning interest you account will grow faster. It’s far more advisable to reinvest it but the choice is yours.

Maturation of Your CD
When your CD matures, which is when your term limit is done, you usually have a window of about 10 to 15 days in which to decide how to want to manage the account. If you don’t do anything banks will commonly reinvest the money into a new CD. This is only done when there’s no alternative direction as how to proceed with your investment. However, it’s advised that you know your policy and give the proper instructions. The options are to take the money or reinvest it.

This basic overview is to give you an understanding of how a CD works and what to expect. Only you can decide what option you choose to take with your money but this has long been a way for people to invest without worrying about anything happening to their money.

While most of the time I’ve written this blog, I’ve made debt elimination my primary focus, there is much to be said in favor of putting money into savings even while still in debt.  From a small emergency fund to a full-blown savings plan, debt elimination isn’t always the first course of action.  While I do generally fall into the debt elimination camp, even I saved a small emergency fund before I began aggressively eliminating over $30,000 in debt, and I recently upped that emergency fund in light of recent events and our economic situation.  Here are a few of the reasons that creating some level of savings may come before debt elimination in a person’s or family’s priorities:

Saving money doesn’t commit it

When you pay money to a debt, you are doing just that – letting go of money under your control and giving it to someone else.  This reduces your obligation to that person or entity, but it also commits that money.  The money’s gone, and you can’t take it back and make another choice with it.  When money is put into savings, it is flexible.  There are many possibilities for the money you save.  Which leads to the next point…

Preparing for the unexpected keeps the unexpected from destroying you

One of the things, maybe the main thing, that throws a person’s or family’s finances off track is the occurrence of something unexpected.   From a home repair to a car repair to a job loss to a health problem, there are many unexpected things that can happen.  Having money in savings allows you to deal with unexpected things without going deeper into debt.

Security happens in many ways

Having money in savings provides a level of security and a feeling that one can handle life’s challenges.  This relates to the above unexpected comment, but is different because it is the provision of peace of mind even if nothing unexpected happens.  That level of security is sometimes necessary even more than the security of eliminating a debt.

Interest rates don’t lie

What happens when your savings rate is higher than your debt rate?  While that might not be common in today’s economy, it has happened before, and will happen again.  In fact, some people currently have student loans at a low enough interest rate that their savings rate at some point may exceed it.  While that may not be a big enough reason for some to save vs aggressively pay down debt, it can make financial sense.

Should you pay down debt aggressively or save money aggressively?  Only you can really answer that question, by really looking at what makes more sense for you.  What makes your heart feel good?  What mix of savings and elimination work for you?    Where does your perfect mix lie?

The successes in my life have everything to do with accountability.  Without accountability, I tend to let things drift.  There always seems to be something else out there that is holding me accountable that i need to deal with, and I let the things that can slide, slide.  That’s the main reason I started this blog – once I committed in my head and heart to debt reduction, I needed an outlet to keep track of what I was doing and keep me accountable doing so.

Saving money has always been a nebulous area for me.  There are many things one should save for, but few hard and fast numbers I can hold on to.  The starting point is an emergency fund, and with some thought, research, and planning, I can come up with hard and fast numbers to latch onto there.  But I also want to save for retirement.  But I have no real idea how long I’ll live, and how much I’ll need.   I want to save for my kids’ college educations, and I can make some guesses but I’m not sure what i need there, either.  And what about future life changes, like home improvements, new (to us) cars, and other things that come up?

Without hard and fast numbers, I tend to let things drift.  Which is why setting specific goals is so important for success in these areas.  With debt reduction, there have been specific numbers and targets to reach all along the way.  This has been a key element to my success at it thus far.  But with saving, the idea of saving “everything I can” isn’t a good long-term outlook.  I can only live in a position of deprivation for so long before I start to rebel against it.  I have become accustomed (and even enjoy) some of the “deprivations” we’ve created, but life is, after all, meant to be lived.  There needs to be a balance of enjoyment and sacrifice (within one’s means, of course) in any life.  So setting specific savings goals will be key to becoming a successful saver.

So that’s my goal for the next few months.  As I start to see the light at the end of the tunnel on my non-mortgage debt, I’ll start to figure out how to set realistic savings goals, how to make them motivating, and how to reach them.

We’ve all heard the phrase “Pay yourself first”, but what does it really mean?  At its essence, paying yourself first is saving money for yourself before you give it to everyone else.  I use the term “give” loosely, I am not talking about specifically charitable giving or anything like that, more anything you spend money on, be it bills, shopping, or anything else.  It is a simple concept, pay yourself first, but one that a large amount of people do not follow.  Why?  Because it is easier to spend than save?  Because it is easier to pay those who are asking for your money than give it to yourself?  because it doesn’t seem like there is enough to go around?  Whatever the reason, here are five concrete ways you can start getting into the habit of paying yourself first.

1.  Set up an automatic paycheck deduction/savings deposit.  You don’t have to start at the top to do this.  Yes, we’ve heard you are supposed to save 10% of your salary but you don’t have to start there.  Set up an automatic deduction out of your paycheck to go into your savings account (or an automatic deposit out of your checking into your savings) for just $25 a month.  Just do it.  You’ll get used to having that money automatically saved for you, and you can build it up to a bigger amount later.

2.  Put one item back at the store, and deposit the savings.  Before you leave the store when shopping, go through your cart and put one item back.  Write down how much that item would have cost, and then when you get home, do an online transfer from your checking account to your savings account for that amount.

3.  Skip your habit once, and deposit the savings.  Do you have a habit that costs you money?  Be it smoking or coffee or eating out or books or anything else, I’m not asking you to give it up for good.  Just for one day.  Refrain from your daily (or weekly) habit one time, and then deposit the savings into your savings account.

4.  Sell one item, and deposit the profits.  If you are like most people, there is at least one item in your house that is underutilized and you could sell for something.  Use craigslist or e-bay or even a note on a bulletin board and sell one item.  Just one.  And deposit the profits made into your savings account.

5.  Make a phone call, record the savings. What services do you have, and what might you be able to pay less for?  From interest rates to insurance payments to calbe TV, look at all of your services, and identify where you might not be getting the best deal.  make a phone call – and when you reduce a payment, deposit the savings.

There’s a recurring theme here, and it is for a reason.  Deposit the savings.  Don’t just save hypothetical money through actions – actively *save* that money concretely somewhere.  And don’t stop with these ideas – this is just the springboard to get your toes wet.  The more you make paying yourself first a habit, the more likely you are to do it.  And the more likely you are to do it, the more times you will follow through and pay yourself first.  Even little payments to yourself can over time add up.  Keep that big picture in mind, and make a payment to yourself today.

When I started my first real job at 14, I didn’t have many expenses. I lived at home with my parents, I wasn’t old enough to drive, I didn’t have a significant other (yet) to spend money on. So I saved the vast majority of my earnings. Although I instinctively enjoyed the idea of saving my money (my brothers, on the other hand, called it hoarding), I thought I needed a purpose for saving. So I gave the money a specific purpose, and saved my money to buy a car when I was old enough to drive. And that is exactly what I did with it.

Now I am not trying to claim that money shouldn’t be saved for specific purposes. But the idea that was missing from my financial vocabulary was the idea of saving money “just because”. I now have an emergency fund, and although there are a lot of things it could potentially be used for, it doesn’t have a specific purpose preassigned to it. I save it just because. Just in case I need it. Just because some money should be saved. And hopefully, at some point in the future, I will save a very large amount (to me) of money, between $15,000 and $20,000, just because.

This is a very new concept for me to embrace. It was a hard thing for me to wrap my head around, this idea of saving money with no specific preassigned purpose for it other than to be there in case it is needed. And certainly, the idea of saving a large amount of money with no absolute and certain predetermined assignment is still a hard one for me to completely embrace. I’ve never had a significantly large amount of money saved for anything, especially not one that was five figures. I don’t think I have ever had a bank balance with five figures before, and our retirement savings is currently barely into five figure land. The idea of saving that much money without knowing exactly what it will be used for is a very strange concept to me indeed.

But if I have learned nothing else over the past year of blogging about my finances, I have learned to expect the unexpected, and that being prepared is a much better alternative to being unprepared for what life may bring. We’ve weathered a few financial challenges, and the one where we were prepared to handle the difficulty without turning to debt was a much smoother and less traumatic ordeal than when we had no idea how we would get through the difficulty.

I’m an emergency fund believer, a convert, and an embracer of the just because mantra. And we will continue to save money, slowly but surely, just because.