If I Have Extra Money, Should I Invest It?

August 22, 2017 By laurasomewherelse in Money Tags: 401(k), Emergency Account, emergency fund, Index Funds, investing, Retirement Account, Roth IRA, Savings Account, stock market, thirties, thirtieth birthday 2 Comments

I recently wrote an article about the best savings accounts and received quite a few comments about investing the money in “safe, high-rated” stocks instead of a 1-1.5% interest savings account.

I would love to do this – invest in stocks and get a possible 7-10% return on my money instead of the paltry under-2% return that savings accounts provide, except for one main problem:

I don’t have enough in my emergency fund yet.

What is an emergency fund? It’s a cushion of money that isn’t invested in anything which provides a cushion in case of a money emergency. This money must be immediately accessible. The money can’t suddenly drop to near zero because of a market freefall- it needs to be reliably there for you.

How much money should be in this emergency fund?

Most experts recommend emergency funds hold between 6-8 months of income. This means that if you make $3000 a month, an emergency fund should have $18,000- $24,000.

Why do I need so much money in my emergency fund?

What if, god forbid, you lost your job tomorrow or got hit by a car and were stuck with insane medical bills and possible disability that prevented you from working? It might take awhile to get back on track again. If you lost your income for a few months, you need to be able to cover major expenses for a that time with a cushion of money. Otherwise you might go into extreme debt. And if you go into debt, you will get hit with insane interest on any kind of loans you might have to take out. An emergency fund is like a loan to yourself…with no interest.

Why can’t I invest this emergency fund?

Because even with the “safest, top rate stocks,” the market isn’t safe…you can’t time the market. Your cushion of invested emergency money could drop down to next to nothing at any point. And if your emergency fund is invested and you have an emergency, you’ll need to pull the money from the market. And if the market is at a ‘bad’ time, you won’t be able to wait until it recovers, so you’ll be at a major disadvantage and could end up pulling your money at the worst possible time and losing a ton of $$$.

If my emergency fund is already at 6-8 months, can I invest additional money?

Sure. I would recommend investing in a retirement account first, such as a Roth IRA, or your work 401k, and contributing the max, or at least 15% of your monthly income. I recommend starting with retirement investing because retirement funds are tax protected, meaning you won’t get taxed on your earnings right now (you’ll NEVER get taxed on them with Roth IRAs). THEN if you still have additional income, go ahead and invest intelligently…maybe in some index funds. Or, if you have what some of my favorite financial advisors call a “burning garbage pile” fund, invest some money in individual stocks…but only invest money you’re cool with possibly losing. Hence the ‘burning garbage pile.”

I know it’s hard to save for emergencies- I’m not fully funded myself…but I’m working on it. Do what you can. Be safe and be prepared!

And of course, let me know in the comments if you have any questions.

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Are You Saving Enough In Your Thirties?

July 14, 2017 By laurasomewherelse in Grab Bag, Money Tags: ally bank, barclays savings account, emergency fund, emergency savings, goldman sachs savings account, gs bank, saving in your thirties, Savings Account, Suze Orman, synchrony savings account, thirties, Thirty 4 Comments

Multiple friends recently asked me about savings accounts- the best places to have them as well how much to save. A few optimistic questioners asked if there were places where 5% or 10% in interest exists- or even more.

I’m sorry to let anyone down, but as of this moment, there are no magical savings accounts that will give you 5%+….or even 2%+. Not for regular savings accounts anyway. I wish there were.

If you want to withdraw your money anytime anytime in the near future, which is what emergency savings accounts are for, you need to have an account where your money is easily withdrawn. Other types of savings vehicles, such as CDs, (which are savings vehicles that let you leave your money in for a long time (not for emergencies)), used to promise at least a decent interest rate in exchange for locking up your money for years, are now offering paltry returns way below 2% (not worth it).

However, even though savings accounts today aren’t what they used to be, you should still have one. Here’s why. What if you have a medical emergency, or a major repair in your household? Or what if you suddenly lose your job or, god forbid, get hit by a car and become disabled? There are all kinds of money emergencies that come up out of nowhere. You need to be able to have some money to draw upon so you don’t become debt-ridden or bankrupted by a surprise expense. That’s where the emergency savings account comes in.

Financial experts disagree on exactly how many months of income you should aim to put away, but the responses average around 6 months, with more conservative experts, such as Suze Orman, advising 8 months of income in an emergency fund. So whatever you make a month, post-taxes, multiply by anywhere from 6 to 8, depending on how safe you’d like to be. That’s the goal for your emergency fund.

So if I make 3,000 a month after taxes, and I want a 6 month emergency fund, I should have $18,000 (3 x 6 =18) saved that I’m not touching to go get my nails done or go see Hamilton in the center orchestra. That money is for emergencies.

Now, your emergency fund should not be invested in the market or in real estate or in anything- it should be ready to grab at a moment’s notice. So where SHOULD you keep your emergency fund?

The people who asked me about savings accounts were currently keeping extra money in their banks, where it was making something like .003% interest. Now that’s REALLYYYYY low, even in the land of savings accounts. So below are places where you can currently get 1%- 1.20% interest on your savings, as of July 14, 2017. Here are the top ones from my research:

GS Bank (Goldman Sachs), which is at 1.20% right now. They’re online only, which is fine with me, and they’re what I use. You can start an account with as little as $1. Here’s the link to GS.
Syncrony is at 1.15% right now. They’re also online only. You can start an account with as little as $1. Here’s the link to Synchrony.
Ally is at 1.15% right now. Online only, and very popular.You can start an account with as little as $1. Here’s the link to Ally.
Barclays is at 1.15% right now. They have some branches if you link brick and mortar as well as online. You can start an account with as little as $1. Here’s the link to Barclays.

I get no commission from these links (I wish)- they’re just the best places to save based on the research I’ve done.

So, if you have absolutely nothing squared away for savings, never fear- just start right now. Whenever you get a paycheck, take 5% (or even 10% if you’re feeling ambitious) and put it into a savings account. Automate this if you can- I swear you won’t miss it!

Aim low at first. Try to get to $1000 to start for emergencies- that’s wayyyy better than nothing. Then build up. I haven’t personally hit my 6 months emergency savings account either, but I’ve begun.

I swear, with savings accounts, starting is usually the hardest part. But then you’ll be SO happy you have a buffer.

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The Anti-Budget Budget In Your Thirties

July 23, 2016 By laurasomewherelse in Money Tags: Afford Anything, anti-budget, budget, budgeting, emergency fund, goodbudget, investments, Money, Paula Pant, Retirement, save first, Savings, thirties 1 Comment

Although Jane and I both very recently wrote articles about how we’ve been tracking every dollar we spend lately, (check out Jane’s Budgeting article Saving Money Like You’re In the Depression Era and my budgeting article How Tracking Money is Like Weighing Yourself), I want to write here about a way to possibly not track your money at all.

This is kind of the method I was unofficially using before I started tracking every dollar this past month using the Goodbudget app. The method involves taking a savings percentage off the top of your income before you spend any of your money on anything else. The word “savings” is general and can include any of the below:

–Contributions to an Emergency Fund

-Contributions to any savings account

-Contributions to a retirement account – such as a 401K, an IRA, or a Roth IRA.

-Paying down any debt- such as a student loan, a credit card, or accelerating your mortgage payments.

-Contributions to your child’s college fund- such as a 529 Plan.

So here’s how to live the anti-budget life:

The second you get paid, decide on a percentage of your income to contribute towards savings.

2. If you never save anything, you can start with as little as 1% to save. The way to figure this out is to simply knock 2 zeros off the amount. So if you get paid $2000 biweekly, contribute $20 every time you get paid. Make $1000 biweekly, contribute $10 every time you get paid.

3. If you’ve been saving already, for retirement, for a house, to pay down credit card debt, to have a good emergency fund- saving for anything really- then you can easily incorporate this tactic to make saving money even easier. Whenever you make any money, save a certain percentage towards any and all of your goals. I usually do it this way- the second I get paid, I put 10 percent towards my emergency fund, 10 percent towards retirement, and 10 percent towards throwing extra money at my student loans.

With this tactic, you can then try not budgeting the rest but instead spend it comfortably knowing that you’ve already saved what you needed to.

Of course, you’ll need to make sure your bills, like rent and utilities, are paid before you spend the rest freely, but you will still be able to spend without budgeting every dollar.

Check out another anti-budget budget article by the awesome finance blogger and podcaster Paula Pant of Afford Anything- she lives by this strategy and goes into immense detail about it in The Easiest Budget to Follow- Shockingly Simple.

Give this strategy a try, especially if you hate budgets, and let us know how it works for you! It’s nice and simple!

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Tag Archives: emergency fund

If I Have Extra Money, Should I Invest It?

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