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Money Guide – Saving

The following is adapted from “Living in the Village: Build Your Financial Future and Strengthen Your Community” by Ryan C. Mack.

– Maintain At Least 6 to 9 Months of Living Expenses in Your Emergency Fund
– Keep your Emergency Fund in checking, high-yield savings and lines of credit

How to Jumpstart My Savings
What Questions I Should Ask When Opening a Savings Account

The Money Movement believes in making life easier, not harder. The emergency fund not only makes life a lot easier in times of economic strife, but gives you security in knowing you have a backup plan for unexpected occurrences that can cause a financial strain for you and your family.

In fact, the less you earn, the more important it is to be mindful of your expenditures. Less income means less ability to provide a cushion during financial setbacks (job loss, salary reduction, rising gas prices, or medical emergencies).

You Gotta Start Somewhere

Let’s face it, being disciplined enough to save 10% of your income each month doesn’t come easily to everyone. In fact, it goes against everything our consumption-oriented culture tells us to do with our money. That’s why you have to create auto-disciplines in order to force yourself into the savings habit. The Money Movement recommends the following tips to help you get started:

● Start small and then work your way up the savings ladder. Be realistic with yourself: if you know it will be a struggle to put aside $200 a week, then start with $25 instead. As you start to see your account grow, you’ll be motivated to increase your weekly contributions to meet your goals faster.

● Have your employer’s payroll department direct deposit 10% of your income to your savings account and the rest to your checking account. If you don’t see the money coming out each month, you’re less likely to miss it.

● Maintain checking and savings accounts at separate banks. Why? Because if you have the accounts at the same bank its way too easy to click one button and instantly transfer funds from savings to checking. Then,before you know it you’ve wiped out your savings and probably incurred excessive transfer fees as well. At least if you have checking and savings accounts with separate banks, you’ll have to wait at least three days before the transfer is completed. By then, you may have already changed your mind.

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Putting It Aside For a Rainy Day

How much of a cushion is enough? We think it is important to have six to nine months of living expenses saved. These savings should be placed in a high-yield savings account. (“High-yield” refers to the interest rate on the account.)

Many of you might be thinking, “Six to nine months of living expenses?! I can barely make enough to pay the bills that I have now, much less save for six to nine months of living expenses!” If this is your mentality, you will never reach this goal. It’s funny how when people want to save to purchase items such as a car, a television, an expensive necklace for a loved one for the holidays, or any other high-priced item, they seem to always find a way. One of those ways is by putting items on layaway. Why can’t we force ourselves to “lay away” an emergency fund and act as if it is just as important as the flat-screen TV we’ve been wanting? Because it is, in fact, just as important.

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Laying the Framework for Your Emergency Fund

Now, you know it’s important to have six to nine months of living expenses saved, but it’s not so important to have it all in cash. Here is a breakdown of where these funds (using nine months’ expenses) should be located:

One month of living expenses: Checking account for immediate access
Five months of living expenses: High-yield savings account for access within one to three days
Three months of living expenses: Certificate of Deposit, line of credit and/or credit card

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Protecting That Paper

We always need to ask the right question, or we risk getting hurt. This is true in finance and especially true when selecting an emergency fund. Below is a list of questions that should be asked and answered before you select a high-yield savings account for your emergency fund.

1. What APY (annual percentage yield) will I earn in this account?
2. Is this account FDIC insured?
3. Is this account protected under the NCUSIF?
4. What are the fees of this account, if any?
5. What is the minimum deposit required to open this account? Must this amount be maintained, and is there a fee if it isn’t?
6. Is there a maximum on the number of withdrawals allowed on this account per month?
7. Does this account provide 24-7 telephone banking services, and do I have 24-7 access to my account online?
8. Can I electronically link this savings account to my checking account for transfers?

Didn’t find what you were looking for in Money Guide:Saving? Send us an email at info@moneymovement.org and one of our experts will get back to you.

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