Category Archives: Money

How and Where to Save for a Rainy Day

October 4, 2012 Sara Hamling 10 Comments

When you will use this money: within 1-5 years

Where this money lives: high yield savings account, money market account, CDs

In my last article I went over how much of your budget goes into your short-term/emergency savings account. But we still need to figure out how much money you should keep in this account. Basically, you want to have at least 3-6 months worth of expenses in your short term/emergency account. Remember, your short-term/emergency account is used in case you lose your job, need to put a deposit down on an apartment, or are planning to travel for a few months.

To figure this out: Add up your necessary expenses (rent, bills, grocery, car payment, gas, medical) plus some extra. Multiple that by six months. This is what you’re aiming for. Three months is good. Six is much better (what if your computer dies while you’re unemployed?!).

Before I go into how and where to put this money, let’s talk about how you can make money on these savings.

I have been banking with Wells Fargo my whole life. It actually says, “customer since 1988″ on my debit card. So I trust them. After I became a full-time salaried employee at my job, I went to Wells Fargo to see if my savings account (where I keep my short-term/emergency funds) could be changed to one with a higher APY (annual percentage yield = a tool for evaluating how much you earn on your savings each year) since I could start putting more money in it. I was able to switch from .01% APY to .05% APY. Five times more! I knew there were better offers at different banks but I figured they didn’t vary that much so I stuck by my bank.

Wrong.

When I started researching for these articles I looked more closely and found that you can find dozens of banks that offer up to .95% APY. They’re just not the big banks you most commonly think of—they’re mostly online banks. Online banks are able to offer much better APYs because they don’t have physical branches that are costly to run. Basically, if you have $10,000 in one of these online savings accounts making .95% APY, you make $95 a year in interest. Wells Fargo on the other hand, was giving me just $5 a year. No f*@%ing way.

It took half an hour online to open a high-yield money market savings account with Ally Bank and I found that there were some other perks too. There are no fees to have the account. With Wells Fargo you have to have a minimum balance of $3,500 or have an automatic monthly transfer go into the account. You get a debit card that you can use at any ATM and if there’s a fee, they reimburse it. This perk is nice although you shouldn’t be taking money out of this account on a regular basis.

So, let’s say you now have a sweet savings account set up and you’ve started putting money in it. Now what do you do? You don’t touch the money. What was that? DON’T TOUCH THE MONEY. This is not a second checking account. This is a comfy cushion you have hand-sewn so that if something bad happens you can fall down and be okay. If you keep taking the stuffing out of your comfy cushion, you’re gonna fall flat on your face and your face is going to look like crap.

Because this could be tricky, I’ve put together some helpful guidelines:

Ok, here are the situations when you can touch your savings: You lose your job. You have a sudden medical emergency. Your computer makes a horrible sound, goes black and never comes back. You have to put a deposit down on an apartment. You’ve been sleeping on an air mattress for the past year and need to buy a big kid bed. You need to buy a new car because Old Classy died.

Here are the situations when you cannot touch your savings: You need that $200 dress because you’re seeing your ex for the first time since you broke up. You really want to hit up Vegas this year brah. You’re too lazy to budget correctly so if you need more money, you can just take it from here, right?—This is especially NOT ok.

Exceptions: You’re using this account to save for your wedding or to travel for a long period of time. That’s ok, although I would suggest creating a separate savings account (or sub-account) for this if you can, and maintaining at least 3 months worth of expenses in your emergency account.

In researching the best place to put my money, I found some high-yield savings accounts that you should also consider:

Ally Money Market Savings Account – 0.95% APY. No min deposit, no min balance, no monthly fee, easy to access money with debit card that can be used at any ATM without a fee. This is the account I currently have.

ING Direct Orange Savings Account – 0.80% APY. No min deposit, no min balance, no monthly fee, ability to open sub-accounts to save for emergency, wedding, new car etc and keep that money mentally separate.

American Express High-Yield Savings Account – 0.90% APY. No min deposit, no monthly fee.

Discover Online Savings Account – 0.80% APY. $500 min deposit, no min balance, no monthly fee.

Remember: Many of these types of accounts are part of online banks which means they don’t have physical locations to take money out. If you need to take money out, you can transfer funds to a different bank, write a check to yourself from the account and cash it at your physical bank or some banks will give you a debit card which you can use at any ATM (watch for fees though).

That being said, the best thing to do is compare savings accounts for yourself with Mint.com.

Another place to consider putting your money is in CDs (certificate of deposit). A CD is a time-based investment. You put in an amount of money (usually at least a couple thousand dollars) for a fixed amount of time (generally between 3 months and 5 years) and the bank pays you interest at regular intervals. Keep in mind if you need this money before the agreed upon date, you will be charged a fine. So if you are interested in CDs, be sure you will not need that money within the agreed upon time period. These accounts have higher APYs (historically around 2%–5%) than high-yield savings accounts so you will make more and your money will be insured by your bank (so long as you work with an FDIC-insured bank).

Pro Tip: CD interest rates are extremely low right now so it may be just as smart to keep your money in a high yield savings account at the moment.

Whether you’re ready to start saving right now or not, be sure you know the savings options that are out there for you in the future. As we learned, sticking with the same account you’ve had since you were 15 might not be the most lucrative place to put your money. Once you’re ready, you’ll feel much more confident because understanding your savings options won’t be unexplored territory.

Photo by Meaghan Morrison

Money

Budgeting for Your Finance Plan

September 19, 2012 Sara Hamling 5 Comments

When you will use this money: Within one year

Where this money lives: Checking Account

If you read my first article in this series, you might remember that immediate spending is the money in your checking account that you use to pay all your daily expenses (rent, bills, food, etc). This article is supposed to be about your checking account—but since I’m not going to explain how to open/use a checking account, that’s a little misleading. Let’s just say, I am confident that you’ve used a checking account before—if you haven’t, you can read about it here. This article is about how the money you spend from your checking account affects the ways you save.

That’s right—we’re talking about the dreaded “B” word. No, not Brussels sprouts—we already covered that one. Budgeting. Determining how much money you have to save depends a lot on what your budget is. We’re going to go over: (1) my recommendation for the best way to budget, (2) figuring out how much money you have to save, and (3) where to put those savings. I am going to focus on how your paycheck should be divided among the categories I talked about last time: immediate spending, short-term spending, long-term spending, and retirement.

Your first task is to understand how you spend your money. In other words: track your expenses. There are two ways to do this: the easy way or the hard way. The hard way is to do it manually. To actually track for a month (and ideally more) how much you spend by keeping receipts and making a spreadsheet of everything you spend money on by category. If you prefer this option because you enjoy having a wallet overflowing with receipts, please refer to this article on How to Track Your Money. If, on the other hand, you like things to be simple, pain-free, and endlessly informative—ooh! me! me!—you should check out Mint.com.

If no one has ever told you about Mint.com, you are in for a treat because it will completely change the relationship you have with your money. Mint.com automatically tracks all your money for you. It is connected to your credit cards, bank accounts, investments, loans—you can even add property to give you a bird’s eye view of your assets and worth.

And it’s safe. You cannot move money within Mint.com, you can only see it. It will show you your net income every month (how much you make minus how much you spend) and help you create a budget and set goals. It even has pretty charts that break down your spending. Best of all, it’s free! I could go on and on, but I’d rather let Mint.com do it for me in their 90-second overview video.

Once you’ve tracked your expenses, the next step is to determine how much net income you have each month. Again, this is how much money you make minus how much money you spend. So, if you make $3,000 and spend $2,700, then you are netting $300 every month. Once you’ve set up your Mint.com account (or tracked your spending manually if that’s how you roll), you will be able to figure this out quickly. If you’re using Mint.com, simply look in the right hand column at the bottom and you will see your net income for the past 6 months. Green is good. You want to be making more money than you’re spending. If you’re not making money every month, you need to change your spending habits to get yourself back in the green. (I know—this can be hard—I promise another article later if you’re still having trouble.)

Ok, we’re going to break out a little math here. Let’s say your net income is $200 on average every month and you currently gross $2,000 a month (gross is the money you make before taxes). That means you are netting (and saving) 10% of your income ($200/$2,000 = .10). This is a great start. If you can do this—you should be happy. According to the pros, your eventual goal should be to net (and save) 15% of your gross (before taxes) income. So, if you gross $2,000, you should be aiming to save $300 of it ($300/$2,000 = .15).

Saving 15% of your income before taxes can be hard. Don’t get discouraged and don’t feel overwhelmed. Be realistic. You’re young. If you can save $20 a month—save that and increase as you can. Even if it’s small, remember why you’re saving, keep an eye on your budget, and make it a priority.

Now let’s talk about where this money you are saving is going. If you’ve just recently started saving, you want to focus on building up your short-term savings (your rainy day/emergency fund) and your retirement account. Don’t even think about the Stock Market until you’ve got this whole saving thing on autopilot with a very happy rainy day fund.

To make this a little easier to understand, this is how I save my money every month: My paychecks automatically go to my checking account. Before they get there, a portion is automatically taken out for my retirement fund (8% of my gross income after my contribution is matched by my company). Once a month, I automatically transfer a set sum from my checking account into my savings account (7% of my gross income). Note how much of this process is automated—all of it. Unless something drastic happens, all my saving will happen automatically. My goal is to keep my checking account at a fairly steady number (about two months worth of spending) while growing my savings and retirement accounts with the income I net every month.

So, what does this mean for you. Well, it depends. Are you hoping to buy a car soon? Planning a wedding? Trying to backpack around Patagonia in the near future? Then, you might want to focus on putting money more heavily in to your short-term savings (and maybe even open a separate account for the wedding and traveling). But don’t focus too heavily on the short-term and neglect your retirement fund. You can’t take a loan out for retirement.

Once you’ve built a cushion in your savings account, try splitting your money between short-term savings and retirement. If your company offers a retirement plan that matches the money you put in, make every effort to contribute the maximum amount they will match because THIS IS FREE MONEY. Do it as soon as it’s available to you. Whether or not your company sponsors your retirement fund or you are doing it yourself, have your retirement money taken out of your paycheck before you ever even see it.

Whatever you do, create a plan that you can consistently follow and then keep with it. Push your budget to reach that 15% savings mark and more. Think of sticking to your budget and saving your net income as a game you have to win. Oh wait—there’s an app for that: SmartyPig.com (and Mint.com.)

If you’re still not convinced saving is important, check out Mike Dang’s article about saving on The Billfold.

Even if this all seems overwhelming, it is never going to be easier to save than it is when you’re young before you have a lot of financial demands on you like kids, a mortgage, or a business to take care of. Keep track of your spending, aim to save 15% of your paycheck, and put that money away. Once you have a plan in place, staying on track gets easier and easier.

Photo by Meaghan Morrison

Money

FML: My Stolen Wallet

September 10, 2012 Remi Coin 2 Comments

It was like any other Saturday—I got off work, ate a snack, then flopped into bed. This particular evening, I was dozing off when my phone buzzed with a text from Chase Fraud, “Did you purchase $300 at a shoe store?” Uh, no.

Getting your wallet stolen is a bitch.

The damage: a hundred dollars cash, my driver’s license, a debit card, my birth certificate (with my social security number written on the back), a sticky note with both my checking and savings account numbers scribbled on it, and various other cards (including my car insurance/registration, my voter registration card, my AAA card, several gift cards, and an old student ID).

The Bank

My first step was to report the fraudulent charges to Chase. The cool thing about their fraud service (which might be true for other national banks) is when they text you about a possible fraudulent charge, if you say, “Yes it’s fraudulent,” they automatically call you. If your bank is not this fancy, you can find customer service numbers online or on your bank statements.

At first, I got the standard pre-recorded voice (wanting either my card number or my account number for verification) but after about a minute I was directed to a real human being. The woman asked me for my address (more verification) and then to confirm which charges were fraudulent. She listed off the last five or so, but I had to log into my online account to see exactly what she was talking about. There were three fraudulent charges: $50 at a gas station, $300 at FootLocker, and $30 at a nail salon. She flagged the charges, canceled my card, and informed me that a new one was on its way.

As for reversing the charges, she told me it would only take about 12 hours for a refund to be posted to my account, but this was not entirely true. The two smaller charges were credited to my account the next morning, but the $300 charge from FootLocker was not. Now this delay isn’t necessarily the banks fault, they have to work with the stores (who may or may not be open and/or challenge the charges). So, if you’re making a claim on the weekend, don’t be surprised if the credits/debits don’t clear until Monday or Tuesday. Overall, the call took about 15 minutes and was pretty painless.

Now if you’re smarter than I am, you won’t put your actual account numbers in your wallet. If the thief had just gotten my debit card, I could have reported it stolen and just waited for a replacement in the mail. But, since we’ve established I’m kind of an idiot, I had to go to my local branch and switch over all my accounts instead.

The guy who helped me told me that my situation was not uncommon and was very helpful. He created new checking and savings accounts for me and transferred over all my money. He kept the old accounts open, but frozen, so only deposits could be made. (This is so that you can be reimbursed for the fraudulent charges.) It shouldn’t cost any money to do this and, if you have one, bring your passport (or some form of identification, i.e. your social security card or birth certificate etc.) Or better yet, call ahead and find out what identification they need.

The Police

After I got off the phone with Chase, I called the police to file an incident report. This meant, about an hour later, an officer showed up at my house to take my statement and give me an identity theft packet with lots of helpful (and scary) information. I gave him a copy of my bank statement (printed off the Internet) because I had noticed that all the purchases were made at local stores. The officer told me this would help tremendously. Now a detective had specific stores to check, along with the exact purchase amounts. But, because my work place (which is where we’d determined the theft had occurred) doesn’t have cameras, getting the thief on camera, at one of these stores, was the only way to identify him or her.

The Credit Bureaus

Next up, I checked my credit report with each of the three major credit bureaus—Equifax, Experion, and TransUnion. (Did I know there were three credit bureaus before this fiasco? I did not.) Luckily, I discovered that www.annualcreditreport.com allows you to check all three bureaus at once, which eased the pain a little. I put in my name and social security number. Then I was prompted to answer really random yet oddly specific questions that only I should know. Things like “Where did I live before 2000?” and “How much money did I make in 2010?” Don’t worry, it’s multiple choice.

You should not have to pay to get your credit report. (There could be a fee if you’ve already checked your report in the past year, but if it’s been more than 12 months, you should be fine.) Credit scores typically cost, but reports should not. Reports are mostly for record keeping purposes and so that you can see if anyone’s stolen your identity in the future. I gave the reports a once over, everything checked out so I saved a digital copy and printed another one out for good measure.

Technically you should call each credit bureau and let them know your information has been stolen. I didn’t do this because the credit bureaus can’t stop identity theft and I was 99% sure that this was a punk kid who just wanted my money, not my identity.

The DMV

Getting a new license is like getting your old one, you wait in line, fill out a piece of paper, and get your picture taken—which I still had to shell out $9 for. Replacing my voter registration card was free. Fortunately, I did not need another copy of my car registration, but if you do, just have your license plate number with you.

The Rest

Cash and gift cards are just gone, they’re never coming back.

I don’t have credit cards, but if you do, approach it like you’re dealing with the bank. Also, I can’t speak for getting new insurance documents (because I had duplicates), but I would suggest calling your provider and going from there.

The document that continues to keep me up at night is my short form birth certificate. It’s the size of a credit card, and contains my name, birthday, and the city I was born in, embossed with a government seal. This document alone could do some serious damage, but I also wrote my social security number on the back of it because I’m a genius. If someone really wanted to be malicious, they’d have everything they needed (driver’s license, birth certificate, SSN) to steal my identity. I know it seems convenient and portable to have your life in one place, but for your own sanity, don’t be like me. Bad things happen, minimize the damage.

The police still haven’t caught the thief.

Photo by Meaghan Morrison

Money

Thinking About Your Money

September 4, 2012 Sara Hamling 2 Comments

Once you reach your twenties, you’re expected to know a lot of things. You’ve gotten to a point where you are expected to know how to work, feed, and clothe yourself—but having an actual plan for your paychecks may not be something you’ve figured out yet. We all have a sense of the lifestyle we want to live—whether that’s buying a house, starting a business, or traveling the world—but often we don’t spend enough time on the road map that will actually get us there.

Financial planning is a subject that young people are often uncomfortable with. There are so many technical terms you’re magically supposed to understand—but what if no one ever told you which ones really matter? I get it. I went to school for design, and no one was teaching me how to make the most from my money.

Luckily, my parents understood that this is confusing for those of us just starting out and were able to answer most of my questions. So, the advice I lay out here comes to you from someone who was a novice but has learned a lot recently by making small but important changes to the way I think about my money. This stuff is scary—you’re making decisions about large amounts of money. But it would be scarier to turn 30—or worse, 40—and realize you really have no plan in place to make sure you can buy a house, help your kids through college, take a year to travel the world, or retire before you’re 80.

This is the first of five articles about the basics of dealing with your finances in your twenties. To start, you should be thinking about your money in categories—four categories to be exact. Four categories that are used to buy different things at different times in your life. And because they’re used at different times, for different reasons, they all live in different places. Right now we are going to go over these categories so you can keep the big picture in mind. Each of the next four articles will go in depth with one of the categories so you feel comfortable going out and making informed decisions with your money.

So let’s get into it. Oh! But before we do, if you want to make this as painless as possible, you might want to save (or maybe even print) the following chart.

All right, here we go. The first category you should think about your money in is Immediate Spending. This is the one you probably already have down pat. This is what’s in your checking account, the money that you will need within a year. This is what you use to pay your rent, bills and buy food from as well as those concert tickets you want and the new glasses you’ll need after you break your glasses at the concert. My post will focus on budgeting and my favorite way to keep track of my money painlessly.

The second category is Short-Term Spending. This is money for 1-5 years away. If you have a savings account, you already have a start on this one. But… you might not really use it for savings. It’s just… you know, that other account. While a savings account works here, I’m going to suggest thinking about a Money Market Account (which is practically the same) and/or CDs (certificate of deposit). Both simply give you higher APY (annual percentage yield, or interest rate), meaning you make more money by simply putting your money in the right place. This money is spent if you need to put a deposit down on an apartment or a new car, want to travel for a few months or in case you get unexpectedly laid off from work.

The third category is Long-Term Spending. This is the money you use to buy a house and start a family, start your own business, or to go back to school. You want to feel confident that you will not need to touch this money until 5 to 40 years from now. You want to invest this money in the stock market and/or in bonds. For all our sanity, when we talk about the stock market, we’re going to keep it to investing in mutual funds and individual stocks. Yes, the stock market can definitely seem scary, but I promise to make it as simple as I can.

The last category is Retirement. Please don’t neglect this one, guys. It’s such an easy one, and starting early has an enormous impact on how much money you retire with. This is the money for all expenses you will have post-retirement. It goes into a 401k, an IRA (individual retirement account), a Roth IRA—or some combination of these.

Okay, those are the basics. Four categories of money for four different types of spending. We will go in-depth with each category in each of the next four articles. Hopefully, by the end of this series, you’ll have a better understanding of how to start plotting your financial road map. I promise, no matter how little you have to save it isn’t as hard as it seems. Once you plot your road map, you’ll be well on your way.

Photo by Meaghan Morrison