Monday, December 19, 2016

Savings Accounts (& Growing Your Money)

I thought I'd make this little PSA-style post just prior to the holiday, since this is the time of year we're stretching our wallets rather thin.

We are spoiled. We live in an age of instant gratification which is why we're all constantly looking for shortcuts. I think shortcuts are when you're looking for an alternate route when you're stuck in traffic. However, when it comes to cash, I'm a major advocate of the savings account.

Okay, yes, savings accounts aren't what they were in their heyday. Everyone argues that the interest offered by banks are hardly worthwhile and won't even keep up with inflation. And I agree; my primary bank offers me 0.01% interest. That means that if I have $100 in my savings account, I will earn a penny; that's pretty pathetic. But guess what? The main reason for savings accounts is not all about shoving in a chunk of money and watching it grow purely from interest; if one could survive on interest rates alone, then we'd only have to work for a few years and then watch our bank accounts grow, right? Savings accounts should be a v. active place where you deposit chunks of money on a regular basis. It's about going back to that mindset you had as a child, when you saved money in your piggy bank.

Sure, investing is definitely valuable. But, because I'm v. conservative with my money and I'm not a risk taker, I'm not that keen on playing the stock market. The only real investment I've made is with my 401K and that isn't even that impressive; I put in 6%, simply because that's the maximum percentage that my company will match (they match half up to 6%) and that's enough for me. Yes, I care about retirement but I also care about having a sum of money available now. I could die before retirement and then the efforts of pumping cash into my 401K will be for nought. Plus, as made obvious by this blog, I love to travel so if my money is tied up in my retirement and investments, it would make it difficult for me to go on my three or four holidays per year.
So, I thought I would share some of my tips for managing money and how to "grow" your bank account, sans the risky shortcuts.

Get a primary checking & savings account. The primary checking/savings account should be with a bank you can physically visit (as well as being accessible online for convenience's sake) with a quick turnaround on getting your money. This is the bank that you will specify to your payroll department for your salary direct deposits and have a debit card with and rely on for everyday needs. I bank with Chase and I love them because they have great customer service and there are several locations near my home and work.

These are the accounts you will rely on the way that you would your wallet. The small-ish amount of money in these accounts will be used on your everyday spending (like bills and groceries) and for your ATM card.

Get a secondary savings account. The secondary account is where you will store your money, like a little vault. For this secondary savings account, I recommend an online bank (like American Express Personal Savings which offers 0.9% interest or Capital One 360 which offers 0.75% interest) because they tend to offer higher interest rates than "traditional" banks (they can afford to since they have less overhead) and I find them to be really convenient. Shop around for the best deal but make sure the bank is FDIC insured and a reliable, trustworthy institution before you start moving any money around.

If you're like me, you can get excessive and have a tertiary savings account. This is unnecessary and the only reason I have this third account is because, at the time, interest rates were fluctuating and I opened it on a whim. But, it has come in handy
Set a goal and achieve it. I make it a goal to put a minimum of 20% of my salary into my savings every year. Because this is a strict rule that I impose on myself, I'm v. hands on when it comes to managing my money. I manually make making frequent deposits into my secondary savings account. The amount I add obviously depends on my current spending and some months I'm putting away a little less and some months I'm putting away a little more but if I feel like I'm getting off track, I evaluate my spending habits and make adjustments where necessary. The important thing though, is that I'm always conscious of this goal and thinking about it helps prevent me from making useless buys.

This savings account is rarely touched. I like to leave it alone to let it grow (through my deposits and with the interest earned). However, it is my resource for when I need it; for example, in 2013, I made two large withdrawals. The first was to redo our kitchen and the second was to pay off the final balloon payment on my car. Sure, those were two big hits, but that is what a savings account is for: to save up for the things you want and need in life.

By the way, the reason I don't make automated deposits is because, like I said, some months I'm spending a little more and some months I'm spending a little less. By making manual deposits, I can basically maximize my deposits. I like to leave $2K in my primary checking account (for bills, groceries, emergencies, and just as a cushion) and anything above that, I'll chuck into my secondary savings account

Set up an automatic deposit into your savings. I know I said I don't like to make manual deposits into my savings, but this tip is related to that extra savings account. I like to set up an automatic deposit (into my somewhat frivolous tertiary savings account) as a sort of rainy day fund. This is what I set aside as spending money for my vacations. I do $50 per week, which is about $2,600 per year and divided between 3 trips, that gives me more than $850 to spend on food and shopping when I'm on holiday. And often times, that is more than enough so some of that money will go towards paying for some of the other holiday expenses, like transportation and lodging and maybe a new outfit or two for the trip.

The great thing about automating a small-ish amount is that I never miss it but it grows easily and because it's also collecting interest, that's a nice bonus sum of money to spend on vacationing.

Budget and don't buy what you can't afford. I'm not someone who keeps track of her expenses religiously by writing them down. Instead, I stick to using my credit card on 99% of my purchases so that I have an electronic record of what I buy and how much I spend. I love my Chase Freedom card because it gives me rewards on my purchases (which is essentially like earning a little interest by shopping) but also because at the end of the year, I get a great summary with a breakdown of what I've spent per month and how much I've spent in each category (travel, entertainment, groceries, automotive, home improvement, dining, and other).

By looking at my year-end summary, I can calculate my average spending per month, compare that to my salary, and figure out if I need to break any bad habits. Lately, I've been trying to limit my senseless shopping. I've allowed myself to spend a bit more in the beauty department (which I've been throwing at nicer skincare items) but I've been cutting down on clothes shopping. I only shop if I have a real purpose, whether it's for a specific event (like a party or vacation) or if I need to replace a staple item in my wardrobe.

I haven't actually read The Life-Changing Magic of Tidying Up but I've read enough about the KonMari method to know that the basic concept is to only keep the things that bring you joy. So, I've adopted a similar mantra for my frivolous shopping tendencies. I now only buy things if I truly love the item, not just because it's on sale or because I have a coupon.

If you're not into budgeting at all, then you should at least follow the golden rule of not spending more than you earn. This seems to be a forgotten art; don't fall victim to unnecessary debt.
Save money where you can. Now that I'm quickly approaching 30, I've grown out of the fast fashion places and I'm partial to higher quality clothing that will last longer. But, I'm not that partial to the higher prices. So, I shop at places like Nordstrom Rack and TJ Maxx. And, though I'm over the trendy pieces from the cheap places, I still hit up H&M for things like socks and t-shirts.

I also made a list of 50 ways to save money, which I actually stick to. I cook at home and only dine out once every two weeks, I pack lunch for work days, I scour the internet for promo codes before I purchase anything; it all adds up.

Earn your money. Touching back on my annoyance with constantly looking for shortcuts, it seems like everyone these days is just trying to be internet famous and make money off of sponsorships on Instagram because it's easy. (Or, you know, some people are old school and strive to marry rich.) These routes will not offer you financial stability. The real secret to getting "rich" (by "rich" I mean financially stable) is to earn money. Earn it. I'm trying my best not to sound like a condescending asshole by saying this, but I honestly believe that getting a good job and working hard are the true secrets to making money.

Yes, there's a reason that hierarchies exist because some people are smarter, some people are more talented, some people are luckier. However, hard work is a major player in whether or not you become financially successful. Play to your personal strengths and find a career path that works for you. Know your worth, but not in an idiotic entitled spoiled brat kind of way, and earn the money that you deserve. And, if you can't make enough with your day job, do more. Sell stuff on Etsy, make Instagram your side job (just not your main job), sell your unwanted things online, be a freelance journalist, etc.

You can't just look for the easy way out and then get upset when everything falls through.

Enjoy your savings. After some time has passed, you'll look at your account and be happily surprised with the growth. And at a certain point, the interest you earn will be a nice little sum that you can use for fun things. And of course, you can also dip into your savings when you need to and want to: maybe you're saving up to buy a house; this is what a savings account is meant for.

This is my strategy. Obviously, I don't have any big money sucks (i.e. children) to bog me down and every person's situation is different. But, save what you can. It'll pay off (literally) in the future.

xoxo.

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