My emergency fund

I hate to even admit it but I have nowhere near 3 to 6 months of expenses in my emergency fund. In fact, I only have about 1 month of expenses in it. For the past year I have been trying to stash money away somewhat unsuccessfully. I have managed to payoff my credit cards so now I need to focus on my emergency fund.

This needs to be a priority of all of us who do not have adequate funds set aside n the event of a sudden expense. I need to talk to my girlfriend and tell her of my goal so that she will understand if I am reluctant to spend money. One thing I need to do is to get my spending under control. I seem to regularly exceed my monthly allowance. Spending and saving are all inter-related..

The $5 Plan

I recently read about a couple that saves every $5 bill that comes in to their possession. I think that is a great idea and I am considering doing the same. My only issue is that I feel strapped right now as it is between the $1,210 every 4 weeks that goes into my 401K, the $100 a month that I put in my Roth IRA and the $600 a month I am trying to put in my emergency fund.

You would think that an income of over $100,000 per year would make it easy to save. It is so true...it is not what you make, but what you save. I have an expensive (by my standards) mortgage of $1,843 per month including homeowner dues and taxes and a car payment of $510 per month along with a student loan payment of $140 per month. It all adds up.

Anyway, the $5 idea is something to strive for so I am going to give it a try.

Impact of federal withholding change

This week's paycheck is the first showing my new withholding. I had previously claimed only one federal exemption but now I am claiming 4. The difference is about $74 every two weeks. Starting next month I am going to add that to my savings each paycheck.

I did not change my state withholding so I expect to still get a $1,200 refund next year. My federal refund will be in the $3,000 to $3,500 range instead of $5,300 like it was this year. I think the extra $74 will do more for me sitting in a savings account then as a future tax refund.

Upromise Account Anniversary

I just passed my one year anniversary in the Upromise program and my account is worth only $7.76. Gadzooks! I am not sure how much I need to accumulate to get anything transferred to my Sallie Mae loan. At this rate my student loan will be paid off before I receive any benefit. To be fair I really only accumulate anything from my grocery shopping. However, I did buy some Eddie Bauer clothes online last month and $2.65 was added to my account for that purchase.

Recession?

Besides the mortgage crisis the big focus of the new lately is the state of our economy. Many people say we are already in a recession and for a lot of folks who have lost their jobs in the past few months, I am certain that they feel we are in one. Hopefully, the economy will cycle through this in the next few months and we can get these people back to work.

I feel safe right now in my financial situation but that could change. I have written about this before but my emergency fund is not what it needs to be. I am hoping by the end of the year that I can get it to at least $10,000 and maybe even meet my stretch goal of $15,000.

Starting with my next paycheck I am going to start saving $200 per paycheck instead of $175. Once I know the full impact of the change I made to my withholding I may even be able to increase it a little more. One thing I do need to do is to stop dipping in to it.

Savings account vs. Money Market

Where to stash your cash now

This article would be scary if I had my meager savings sitting in a money market fund. A money market fund is not the same as a savings account and could lose money. That has not happened yet but it could. I think that a lot of people are going to reassess where they put their emergency fund after reading this reprint of a Fortune magazine article on the Money/CNN website.

Fortunately, mine is in savings and a CD. Right now I have just over $4,000 in my emergency fund which is lower than my 2007 year end goal. I need to get with the program and start stashing away some cash. In the first several months of this year I have paid off almost all of my credit card debt and made a few large purchases, a bike and a laptop. Now it is time to buckle down.

W-4 Withholding Changes

I am changing my federal tax withholding so that I can keep more of my paycheck when I earn it. I am hoping to increase my net pay by about $100 per paycheck and put the money in to my savings. I do have to admit that the "forced savings" of a large tax return is nice and it came in especially handy this year to pay down my Discover card balance to zero. I will still get a federal refund of around $3,000 next year if I have calculated correctly. My state refund should again be in the $1,200 range. All in all, I should be able to have $200 more per month to save and still get total federal and state refunds of $4,200. That would be more than enough to pay off my car or my 401k loan next year.

Now that my credit card debt is almost gone I would like to focus more on my emergency cushion. My stretch goal is to have $15,000 of cash reserves by the end of 2008. I am not sure how achievable that goal is as I am on track to only have about $11,000 saved by the end of the year. If I get a bonus (which is a very big if) I would put 15% of it in my 401k and the rest in my savings. Supposing my bonus is $4,000, then an additional $600 would go into my 401k and about $2,000 after taxes would be available for savings. Last year my bonus was $7,000 but my firm had a very good year. I am not counting on a repeat 12% raise or a $7,000 bonus. My expectations are more in line with a 7% raise and if I am lucky, a $4,000 bonus.

Stock Market Turmoil and Interest Rates on Savings

It has been another really rough patch for the stock market lately. To makes things even worse interest rates on savings accounts are down. My 6 month CD at ING Direct matures on the 18th of this month. I am not going to roll it into another CD at ING because as of right now I can get a better rate if I were to keep it in my WAMU savings account. I will probably put it in another 6 month CD only this time it will be at WAMU at 3.93%. It figures that just when I start trying to build an emergency account that the interest rates fall.

Consumer Confidence drops

Well I know my confidence has dropped. I am reining in any unneccesary spending. I don't feel my livelihood is threatened but in this uncertain environment it can never hurt you to have too much cash in the bank. I think a lot of people probably feel the same way I do. We don't live paycheck to paycheck but we are not comfortable with our level of cushion. Right now I only have about 1.5 months of expenses as a cushion. I am trying to get that up to a 6 month cushion.

See the related story below on Yahoo Finance. Speaking of Yahoo, they are planning jobb cuts of their own.

Consumer Confidence Drops in January

Competitive CD Rates

With interest rates dropping I decided to compare CD rates from a few national banks. These rates are as of January 27, 2008 and of course are subject to change. Additionally, each of the bank may be running specials that are not considered here.

For those with $10,000 or more to invest, the E-Loan CD is a pretty good deal. If like me you only have small amounts to invest then ING Direct or Washington Mutual may make the most sense. I currently have two different $1,500 6 Month CDs. One with ING Direct at 5.15% and the other with Washington Mutual at 5.10%. Earlier this month I signed up for the Washington Mutual Savings for Success account that earns 6.50% that is essentially a CD that you can invest $25 to $500 in every month for 12 twelve months before it matures.

It would seem that in hindsight, I should have signed up for longer terms, but if I recall correctly the 6 month terms offered the highest interest rates. The banks probably were well aware that rates were going to be dropping. My ING Direct CD matures in March and my plan is to add another $1,000 to it and roll it into another CD. I need to do some more homework to determine where is the best place to put my $2,500 and for how long.

Compact fluorescent light bulbs

According to the Energy Star website

"If every American home replaced just one light bulb with an ENERGY STARqualified bulb, we would save enough energy to light more than 3 million homes for a year, more than $600 million in annual energy costs, and prevent greenhouse gases equivalent to the emissions of more than 800,000 cars."

In my own home I have replaced 10 regular light bulbs with compact fluorescent bulbs. I am sure that i am not only saving energy but I am also saving time by not having to replace the light bulbs as often. My experience has been that the compact fluorescent bulbs last at least 5 times longer and probably even more than that. I use the equivalent of 60 watt bulbs in my home but they come with a variety of light outputs. I expect that these bulbs will become even more popular as the price of energy rises. These bulbs are more expensive than regular incandescent bulbs but the energy cost savings is worth it to me. A compact fluorescent bulb will run you around $3.50-$4.00 in comparison to an incandescent bulb costing 50 cents.

What is an adequate emergency fund?

The news is full of stories that we are heading into a recession so what constitutes an adequate emergency fund in such uncertain times? I have read that 3 months is a good cushion but I am pretty sure that 3 months is not nearly enough to keep you sleeping well in a full blown recession. Currently, I only have a little over a one month cushion in my emergency fund. I am fortunate to have a stable job but I still realize that one month is no where near enough.

Should I focus on my emergency fund at the expense of contributing to my 401k? My gut is telling me to continue to build both at the same time. Once I get a 6 month cushion (in about 15 months) I will save less cash and fully fund my 401k and Roth IRA. I believe my modified adjusted gross income will still be under the limits so I can still fully fund it in 2009.

In 2008 my budget calls for me to contribute $15,750 to my 401k and $1,200 to my Roth IRA. Saving for retirement and building my emergency fund are the two most important goals I have for the foreseeable future.

WAMU Saving for Success

I noticed a full page ad on the back of the business section of last week's Sunday paper for a WAMU Savings for Success account earning 6.5%. I went online to WAMU.com and found no trace of such an account, so today I went to a branch location and asked about it.

Here is the fine print:

• Only offered in Georgia, Illinois, and Texas
• Minimum $1 deposit/Maximum $500 to open the account
• Must have automatic monthly transfers of $25 to $500 from your WAMU checking account
• You have to open the account at a bank branch

Basically it sounds like a 1 year CD. There is a penalty if you withdraw the money before 1 year maturity date. Once the year is over the money sweeps into an account that earns 2%. You can renew the CD after 1 year but the rate is subject to change.

I think this is a great deal and promptly signed up.

Bottled water

Last month I bought a Brita water pitcher and swore off buying bottled water. NPR recently had an episode about the plastic water bottles and the environment. Many of them get recycled (and I did recycle mine) but most do not. Now I am saving money and helping the environment. The filters themselves last about two months and cost about $5 a piece. Now I just need to keep my syes peeled for coupons for the filters.

Saving early and often really makes a difference!

I just did a back of the envelope calculation that showed that if I had saved the maximum I could have in my 401k for the past 15 years (even when I was only earning $30,000 per year) I would now have about $201,425 saved for retirement as opposed to the $89,420 that I currently have. The $201k amount does not even include possible employer matches! That is a very depressing eye opener for me. The only thing I can do now is to maximize from here on out and increase my savings any way that I can. I currently save 11% in my 401k and $100 per month in my Roth. I have a $510 car payment for the next 24 months that is my main obstacle to saving more. I remember several years ago there was an ad on TV that had a tag line of “How are you spending your retirement” and showed people spending on new cars and other material things that would inhibit them from saving in their 401k accounts. I am literally counting the months until I free myself from the car payment.

Sticking to the list

I went grocery shopping yesterday and stuck to my list. In fact after using $2.75 in coupons I only spent $44.83 which is way below my $60 budget. I would definitely suggest that people use a list when shopping. Totally out of the blue, I also recieved a dividend check from State Farm for $58.90 in the mail yesterday. I will put it in my savings to help replace some of the funds I took out for my recent trip to France. I put my info in the Pudding Index and was unhappy to see that I am in the high 30’s. I have a lot of savings to catch up on. Since my raise earlier this month I am saving 11% of my salary in my 401k which is about $444 each paycheck. During 2007 I have saved $100 each month in my Roth IRA although this month I invested $200. My emergency fund grows by $175 each paycheck although I have been having to borrow from it lately and will have to borrow again this month to pay my Amex bill.

Interest Rate Drop

In anticipation of yesterday’s interest rate drop I transferred $1,500 into a new a 6 month ING CD at 5.15%. I noticed today the 6 month CD rate is now 4.90% at ING. In retrospect I should have locked it in for 12 months instead of just 6. Regardless, it was a good move on my part. I just wish I had more money to lock in. I transferred a little less than half of my cash savings to the CD. The ING savings rate for regular savings accounts dropped from 4.5% to 4.3% overnight.

Spare change

This past weekend I took my spare change to a Coinstar machine at my grocery store and walked out with $37.21 after the 8.9% fee that is taken off of the top. I promptly put the money into my savings. I plan to continue saving all of my spare change to see how much one year’s worth adds up to. On anothernote I was disciplined with my grocery shopping and spent only $59.07. That included a couple of couplons and taking advantage of store sales. My typical undisciplined grocery trip would be around $80. I am proud of myself for using a little discipline in my spending.

Found money!

August 28, 2007
I received a check yesterday for $27.60. Apparently when I refinanced my mortgage last year the escrow company kept some of my money. I am going to put the money in my savings account. Yep…that is almost a good as finding a twenty dollar bill on the sidewalk. I quickly counted some of the change in my coin jar and counted about $30. That is going into the bank too.

A penny saved...

August 27, 2007
is a penny earned according to Ben Franklin. I have decided to start accumulating my change at the end of each week and set it aside. I don’t expect to yield huge amounts of savings but it is something. This morning I gathered the change from the bottom of my purse and found $1.42. Not too bad. Once I get a large enough amount I can take it to one of those Coinstar machines at the grocery store and turn it in for paper money. I already have a bowl of change I have saved but I haven’t been adding to it until now. We will see.