Category Archive: Savings

Get Out Of Debt – The Emergency Fund

I recently wrote about our debt reduction process – a simple one-page guide to getting out of debt.

Over the next few days, I plan to elaborate on each of the steps mentioned in the article, starting today with a few notes about step 1 – and the emergency fund.

My wife and I have our primary checking account with our local bank.  This allows us to deposit our paychecks locally – and is a great place for my son to find coins for his collection.  The account is interest bearing and is free.

Our saving account is online – and that’s where we keep our emergency fund.  Withdrawals from our checking account and deposits into our savings account take place each week, easily initiated from our online bank account.  We can easily track our account balances via our online bank’s phone app.

emergency fundWhen getting out of debt – before we started aggressively paying off our debt – we worked hard to fund our beginner’s emergency fund.  Our goal was to keep a minimum of $1000 in the account, at all times.  We managed to keep between $800 and $2000 throughout our process.

The emergency fund helped us cover unplanned-for expenses – and helped us avoid adding to our credit card balances.  We dipped into the emergency fund, if memory serves, twice during our debt reduction process.

Both times, we paused our debt reduction (while still making minimum payments, obviously) and rebuilt our emergency fund.  Cash reserves were (and are) that important to us!

After getting out of debt – and prior to the purchase of our first home – we worked to save six-month’s worth of salary in our emergency fund.  We used the same “method” for savings as we did for debt reduction – but this time – the “extra payments” were going into our savings account.

When we purchased our home, we used a small portion of our emergency fund to help with our down payment.  We did this to avoid PMI.  After purchasing our home, we rebuilt our emergency fund.

Over time, as we have gotten better at living on a budget and understanding our month-to-month financial needs, we have moved away from a strict “emergency fund” – and more towards categorized “cash reserves”.  In other words, our cash is allocated, on paper, for future purchases and long-term goals, plus emergencies.

Our emergency fund provided a lot of comfort during our debt reduction process – and continues to help us as we work towards total financial independence.  Thanks for reading – and have a blessed day!

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A Plan To Increase Our Savings Account Balance

At one time – after getting out of debt and before we purchased our new home – we had enough cash in our savings account for six months’ worth of expenses.  We dipped into our savings account when we purchased our home, to purchase new appliances and some furniture.

The time has come to rebuild our savings account balance.  We have created the following plan to increase our savings:

We set a goal.

Our goal is to stash six months’ worth of expenses in our savings account.  We took a look at our budget, removed any obvious unnecessary categories, and then used that amount to calculate our savings goal.

We created a time-table.

One year.  We have give ourselves one year to save up six months’ worth of expenses.  A note about expenses: We are focusing on essentials, plus a few wants.

We have automated a monthly deposit.

Our paychecks are deposited at the end of each month.  An automated withdrawal is then made to our online savings account.  This money comes out first, before any other payments or purchases.

automated savings no credit needed

We will examine our monthly bills.

We are pretty frugal – but there’s always room for improvement.  For instance – we recently realized we were eligible for an employee discount from our cellular provider.

We will use micro-deposits.

Like micro-payments helped us reduce our credit card debt, micro-deposits will help us build up our savings.  We’ll look for ways to save, throughout the week, and make extra deposits to our savings account on Fridays.

We will pause – for just a few months – our aggressive mortgage debt reduction.

I hate debt, and can’t wait until we have paid off our mortgage.  However, I think it’s important to rebuild our savings.  So, we’ll still send an extra, principal-only payment to our mortgage company, but micro-deposits will go towards savings.

We will sell some stuff.

It has been a few years since we had a large yard sale or eBay purge.  The time has come.  We’ll sell some stuff and use that money to increase our savings account balance.

We will shop around for a higher interest rate.

This is just a hunch – but I have a feeling that interest rates will go up next year.  If they do, we will transfer our savings, accordingly.

The past few years, we have adjusted to my new job and our new home.  2015 is shaping up to be an exciting year.  We are excited about rebuilding our savings account balance.  Blessings.

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Make The Payment To Yourself

My wife and I have been saving up for a new-to-us automobile.

Instead of financing the purchase of a newer car, we have been making monthly payments to ourselves.

Each month I initiate a transfer from my local checking account to my online savings account.  (ING Direct makes these transfers super-simple to set up.)

The amount transferred is equal to the estimated cost of the vehicle, divided by the number of months until the purchase will be made.

This approach works for any major purchase – and helps to keep us out of consumer debt.

Obviously, we all know that we should save.  However, most folks never get to the point where they do save.  We look around and see all of the stuff that we want – and we borrow to get it.  We are then stuck with monthly payments and interest charges.

My own debt addiction left me miserable and broke.  I had a mailbox-full of bills and a life-full of stuff that I didn’t really need.

Thankfully, my eyes were opened.  I was able to see how dangerous my borrowing habits had become.  I broke the cycle – and I never want to go back to it.  Instead, I save for future purchases.  I focus on what I already own – and work hard to save for things that I actually want and need.

Today is not the day to bury our heads in the sand and ignore our financial situation.  Instead, today is the day to take charge – to look ourselves in the eye – and do something.

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