With the markets down and the economy going down the tubes…there’s no better time than now to start building up your savings. I’ll tell you how to do that and some safe places to stash your money on this episode of 2MinuteFinance.
Video Transcripts:
With the markets down and the economy going down the tubes…there’s no better time than now to start building up your savings. I’ll tell you how to do that and some safe places to stash your money on this episode of 2MinuteFinance.
Financial experts have always said that Americans should keep 6 months of savings in the bank as an emergency fund. But between loosing a job, keeping up with loans, and other obligations, 6 months might not be enough anymore. Instead of thinking in terms of months, think of a savings account as a place where you regularly contribute.
The best way to do this is to automatically deduct 5-10% of your paycheck into a separate savings account at your bank.
If you haven’t already, ask your employer to direct deposit your paycheck into your checking account. Then ask your bank to sweep that money into a savings account immediate afterwards. Its an easy process to set up on a reoccurring basis, so you can “set it and forget it.”
Remember, 5-10% is only a guideline. It’s important to find an amount your comfortable with. For example, $150 a month or $75 a paycheck, if your paid twice a month.
Let’s take a look at how your small monthly deduction would look like two years from now.
If you contribute $150 a month for 2 years…
At an interest rate of 3%…
You’ll have $5,163.97 at the end of 24 months. More that enough to cover yourself for a few months if there was a sudden change in your life.
But the next question you might be asking is: Where do I put that money in the long term so it’s safe?
The best place to stash your money is in a Certificate of Deposit, or a CD. They’re safe, FDIC insured for up to $250,000, until December 2009 when it reverts back to $100,000 per person, and earn a relatively higher amount of interest than just placing your money into a savings account.
Remember, CDs lock your money in for a certain term. If you take them out early, you’ll lose your interest you earned during that period. I’ll explain more about CDs in a later episode.
I recommend looking at online banks and credit unions for CDs and savings accounts. They pay a higher interest rate with low opening balances and are typically easier to deal with, albeit by telephone or e-mail only.
The most important thing is to keep contributing on an ongoing basis, even above and beyond your monthly contributions. If you get a Christmas bonus, take half and spend it and put the other half into your savings account. If you didn’t go out to that movie that you really wanted to see, take that money you would have spent and put it in your savings as well. Any bit of additional money will help you build your savings faster.
For more resources and where to look for CD and savings accounts, visit my website at 2MinuteFinance.com. In San Francisco, I’m Bobby Lee for 2MinuteFinance.
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